HMRC claims changes will make things easier for smaller firms

According to a spokesman for HM Revenue & Customs (HMRC), tax will get easier for small businesses because it is going online and, with the new quarterly return, will be more efficient and more effective than the annual return system.

As he points out, most of the UK’s 5.4 million businesses already manage aspects of their tax online. For example, over 99 per cent of VAT returns are now digital and the taxman will have abolished the annual tax return within the next few years and replaced it with a simpler, online system.

The new digital tax accounts will integrate the different information businesses have to provide into a simple, seamless process, from entering it in a business record-keeping app through to filing it with the Revenue.

Therefore, according to the taxman, instead of having to dig out months’ worth of receipts to fill out their annual tax return every year, business owners will just have to check that the information they are recording is correct and click on ‘send’ to update HMRC on a quarterly basis.

In a recent statement, Director General for Business Tax at HMRC, Jim Harra, said that most taxpayers want more certainty over their tax bill and the new digital accounts will give them access to an in-year picture of their tax position. Moreover, it will mean that new businesses are less likely to go under when they receive their first tax bill just because they hadn’t known how much to set aside.

However, Mr Harra accepts that businesses will want time to adjust, so the reforms are being introduced gradually, with no one moving across to the new system before 2018 and, in a month or so, HMRC will consult on how it should operate.

In the meantime, any business owner who is unsure of what the new system will entail should have a look at HMRC’s animation, entitled Making Tax Digital, or take professional advice.