Government backs down on small business red tape: but will it really help you?
If there’s one thing that’s the bane of a small-business owner’s life, it’s keeping on top of all the red tape demanded by the government. Whether it’s running a compliant payroll, getting your VAT returns in on time or submitting your accounts, it seems like the taxman wants more paperwork out of you than you’d find in your local branch of Staples.
So, at first glance it would seem that the government’s Making Tax Digital initiative – which should see us all send our financial data to the taxman at the touch of a button – is a good thing.
It would also appear to be a stroke of luck that the government has also backed down on a proposal to dump a new layer or red tape on smaller businesses.
The original plan was for firms to keep their records and books online and to update HMRC every quarter. However, after consulting with trade bodies including the Federation of Small Businesses, the government has decided to scrap digital reporting for the smallest businesses as well as the requirement for digital reporting.
FSB Chairman Mike Cherry revealed detail about the changes, saying:
Removing small firms and the self-employed with modest turnovers altogether from the proposals will now mean that in addition to the 1.6 million small businesses and landlords that were already excluded, as a result of these changes announced, a further 1.3 million small firms and landlords will no longer be in scope. This means that half of the UK’s 5.4 million small businesses will not be affected by quarterly tax reporting. The expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help.
Financial Secretary to the Treasury, Jane Ellison MP, confirmed that the government would press on with its Making Tax Digital programme, but added that the requirement for quarterly returns would be dropped. She said:
By replacing the annual tax return with simple, digital updates, businesses will be able to concentrate on putting people and profit, not paperwork, first.
It’s an interesting claim, especially as the changes could be argued to be putting HMRC first. After all, despite the recent exemption, half of small businesses will have to comply with quarterly returns to the taxman. And when the Making Tax Digital programme has been completed, it’s not difficult to imagine that HMRC will once again bring exempted firms back into the net.
This isn’t great news for businesses, for a couple of reasons:
- Even though quarterly payments are no clearer than annual ones, you end up paying the taxman more often – and that can affect cashflow and investment;
- It will encourage businesses to submit their own quarterly returns, rather than using their accountant – meaning the opportunities for error multiply. You could easily get hit by demands for back tax if you get your quarterly returns wrong.
The fundamental problem is that the changes are really about ‘digitalisation’ rather than ‘people-isation’!
So what can you do about it? If you are wise, you’ll plan for these changes now, even if you don’t currently appear to be affected by them. In the near future, the taxman will need you to keep your records on a cloud-based accounting system. Rather than just set one up yourself, your best option is to work with your accountant to set up an online system that they can also use to check, amend and use to give you valuable advice.
That way you’re ready for whatever the taxman needs in terms of record keeping, you don’t run the risk of making an incorrect return (or facing demands for back tax), and you benefit from your accountant having real-time information about your accounts.
We can help you do this. So talk to us today and we’ll help you plan your accounting systems so they can cope with whatever HMRC demands from your business.