BREAKING – Self-assessment reporting of income and expenditure will be required of landlords from 2018, that’s according to a recent media release by HMRC.

The Government and HMRC say they remain committed to the “Making Tax Digital” project which will mean a major change to the way tax returns are completed in the future.

The plan is to introduce quarterly reporting of income and expenditure by businesses and landlords from 2018. HMRC are currently consulting on a number of proposals to make radical changes to facilitate the introduction of the new regime.

However, accountants have said they have serious concerns about this timescale. HMRC say “you will not need an accountant to fill out the information on the new system”, a statement which is not surprisingly of concern to accountants.

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It seem that HMRC are expecting businesses to use new Apps on their Smart phones and Tablets to transmit their data to HMRC; a process where seemingly business people can scan or photograph invoices, for example, and transmit this accounting data digitally and automatically.

Another change to allow this is that small businesses and landlords will be allowed to prepare their accounts on a cash basis with the threshold for using that basis as it is now, significantly increased.

There will be reforms to the current basis period rules for all small unincorporated businesses and a new voluntary Pay As You Go (PAYG) tax payments system to help businesses and landlord budget for their tax payments.

It is estimated that around 1 million small businesses and landlords currently prepare their accounts on a cash basis. This means that sales and purchases are recorded in the accounts at the date cash is received and paid, as opposed to the accruals basis where sales are recorded when a payment is due, and expenses are apportioned to periods.

Currently the threshold for using the cash basis is the VAT registration limit of £83,000. The HMRC are consultation suggests the limit may be significantly increased, possibly to double the VAT threshold of £166,000, the current limit for leaving the scheme.

Another simplification that’s been muted is the direct deduction of the cost of equipment bought for the business, except for motor cars, when calculating profit, without the need for a capital allowances claim.

One major disadvantage of the current cash basis rules is the restriction of interest on borrowing to finance the business being limited to £500 a year, and it’s thought some similar restriction may be incorporated in the new rules.

The current cash basis period rules are quite complex, and will need simplification if landlords and small businesses are to be encouraged to adopt them. One proposal is that businesses prepare accounts for a period aligning with the tax year (6 April – 5 April), or they even prepare accounts for on a quarterly basis making each one align with their VAT quarters and reporting submissions to HMRC.

Currently business taxpayers are required to make payments on account on 31 January and 31 July, based on 50% of the outstanding liability for the previous tax year, with a balancing payment the following 31 January. This, it is said, makes budgeting cash flows for the self-employed and landlords difficult to manage.

The new voluntary Pay as You Go (PAYG) system for the self-employed and landlords will enable them to make payments towards their income tax, national insurance and, if appropriate VAT liabilities, monthly, with a reconciliation at the end of the year.

Many of these proposals may have implications for your business, so you should consult with your tax accountant beforehand.

1 COMMENT

  1. As an accountant, I am not worried about having too little work. The main indication from my clients so far is that they don not possess the skills, time or inclination to produce quarterly reporting and I will have to do it. Anyone who has tried accounting software will know the problems associated with it. HMRC is rushing through these plans as they feel it will reduce the tax gap. In truth it will be a huge mess. They have stated that the statutory payments dates will not be changed IN THE LIFE OF THIS GOVERNMENT. What about the next one? Fancy paying monthly?

    https://petition.parliament.uk/petitions/167738

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