Tax rules will be changed in the coming years to “modernise” the digital tax system and make it fit for the 21st century. This week, the government revealed that the HMRC’s “Making Tax Digital” programme will be gradually extended.
Currently, the system requires all businesses above the VAT threshold of £85,000 to keep digital records and provide VAT returns through software.
According to the new extension, from April 2020 the programme will be extended to all VAT registered businesses with turnover below the VAT threshold (£85,000), and from April 2023, it will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually.
Jesse Norman, the Financial Secretary to the Treasury, provided the following comments along with the announcement: “We are setting out our next steps on Making Tax Digital today, as we bring the UK’s tax system into the 21st century.
“Making Tax Digital will make it easier for businesses to keep on top of their tax affairs.
“But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis”
The announcement was welcomed by many who heeded it as a necessary step in the right direction.
As Ed Molyneux, the CEO and co-founder of FreeAgent, attested to: “The change is a long-awaited step in the right direction and I hope that we see even greater clarity over the plans so that SME owners feel fully informed positively about the benefits that digital tax can provide for them. “Ultimately digitising these processes may seem like an onerous task at first but one in place they will create time savings, greater efficiency, encourage use of other fintech software such as Open Banking and digital financial forecasting/planning as well as reduce the risk of errors.
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“This will help SMEs in the long term to have better financial processes in place.”
However, others have warned that these changes could be detrimental for the nations self-employed who will be affected by the reduced tax thresholds.
Andy Chamberlain, the Director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE), warned of this: “In pushing ahead with Making Tax Digital, the government must make sure it does not make tax even more complex for freelancers.
“In the plans for extending MTD, the government announced that it would consider making tax reporting more frequent.
“Although this would give the government a more accurate view of incomes, for freelancers, for whom every minute of admin is valuable earning time lost, this could be a significant added burden.
“Freelancers are everyone from IT contractors and project managers to plumbers and hairdressers: government must make sure all of them are supported through these changes.”
When looking at the government’s own figures, it’s clear to see that the self-employed are struggling at the moment.
Official SEISS statistics released in June revealed that 2.4 million eligible receivers had made a claim for a government backed grant.
The total value of all these claims hit £7billion and it is likely that the country will see similar demand when the second round of grants open up in August.