7 FAQs about the Move to Quarterly Tax Returns | Blog | Foundation East
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7 FAQs about the Move to Quarterly Tax Returns

15th February 2017 By Katy Ford in Business advice, Current Affairs

The tax system is changing...

 

From April 2018 the tax system will become increasingly digital. SMEs and the self-employed will need to use software (or apps) to keep their business records and to update HMRC quarterly.

This blog provides some answers to the questions most frequently asked by self-employed people and owners of SMEs. It aims to ease the way.

 

1.When do you need to start submitting tax returns quarterly?

SMEs and self-employed people will be required to submit tax returns quarterly from April 2018. This leaves you with just one year to make changes to your accounting processes.

2. Do you need to change your accounting system to do this?

If your record keeping is paper-based, you will need to transition to an electronic form that automatically integrates with the HMRC’s digital system, which will be mandatory in April 2018. If you do not, you may be fined.

Don’t worry though: you have a year to make this change; HMRC is working hard to make free software available to small businesses with straight forward tax affairs; and your accountant, Foundation East, The Federation of Small Businesses and many other organisations will help you.

3. How difficult is this going to be?

Whilst it is not yet clear exactly what this process will involve, HMRC has committed to simplifying the underlying tax rules to support these changes and to clearly communicating how penalties will be phased in for non-compliance. Indeed, the House of Lords economics sub-committee is in meeting as I write this post, taking evidence on the Government's proposals for quarterly tax reports, so all is soon to become clearer.

4. How will quarterly tax returns work in practice?

Businesses will record and categorise receipts and expenses in their record keeping software or app, reducing inadvertent errors. You will be prompted to send a summary update to HMRC when this is due, which you will be able to do directly and automatically from your software or app.

Updating HMRC regularly will give you more certainty over your likely tax bill, allowing you to manage your cash flow more effectively throughout the year.

Updates to HMRC will contain summary data only - for example, this could be the totals of the categorised income and expenditure data recorded by your business software or app.

Whilst it is yet not clear, but may be soon, how the current end of year detailed tax return will change, a consultation paper does explore how the figure of taxable profit will be finalised, including what activity you may need to undertake and how long you have to do so.

For businesses using the cash basis method of calculating their profit, this could be as simple as ensuring your updates are complete and then making a final declaration. However, more complex businesses will need to review the information they have previously provided, make any necessary accounting or tax adjustments (or make changes to figures entered previously) and claim any reliefs and allowances that they didn’t include in their regular updates.

Although not yet finalised, HMRC’s preferred approach is that all businesses should have nine months from the end of their period of account to complete their “End of Year” activity and make a final declaration.

5. What new apps will I have to buy?

The Government commits to providing ‘free products for the smallest businesses with the most straightforward tax affairs’ and has also stated that it is considering what support might be provided to help with transition. This might be financial support, extra tax relief or practical help, such as online training sessions.

6. What other costs might you expect your business to incur in moving to the new regime?

It is wise to plan for these possible one off costs:

  • Time spent in your business familiarising with the new processes and conversion to these new processes
  • Software expenditure costs (new or upgrading software)
  • Hardware expenditure costs (purchase of a computer, tablet device, etc)

 Plus these possible ongoing costs:

  • Additional support from your accountant or tax agent
  • Additional time spent gathering, collating and inputting data
  • Additional time reporting obligations through providing regular updates and any end of year activity
  • Any other costs or time spent not covered above

Before you start to worry though, remember the Government’s promise of ‘free products for the smallest businesses with the most straightforward tax affairs’ and its commitment to further research and consideration around what support might be provided to help with transition, e.g: financial support; extra tax relief or practical help, such as online training sessions.

7. Are there any benefits to quarterly tax reporting for SME and self-employed people?

Yes!

Updating HMRC regularly will give you more certainty over your likely tax bill, allowing you to manage your cash flow more effectively throughout the year.

The House of Lords economics sub-committee met last week to take evidence on the Government's proposals for quarterly tax reports. After today (15th February 2017), channels to share your views on the proposal will be closed (so if you have any - take action now!) and action plans finalised.

We will, of course, analyse, condense and simplify the outcomes and actions once they are in public domain. So, if you want to keep informed be sure to check out this blog over the coming weeks. In the meantime, if you want to find out more, here’s some recommended reading.

If you, like us, believe in truly fair finance for all, please share this post via Linked In and Twitter. You, or your organisation, could also become a member of the growing Fair Finance Movement by joining Foundation East, or your local RFP. Doing so will enable your local economy to grow and help entreprenuers in your region to make their dream a reality in 2017.

 

  • About the Author
    Katy Ford

    Katy Ford

    Working for Foundation East since its inception in 2004, Katy became Chief Executive in 2009. She had previously held the position of Treasury Manager for a large insurance company. In this role, she was responsible for developing and maintaining relationships with banks and investment houses on behalf of corporate clients, as well as the treasury team. Before this Katy ran a small hotel, an experience that enables her to understand the challenges faced by Foundation East’s SME clients.