insideKENT Magazine Issue 57 - December 2016 | Page 185

BUSINESS DIGITIAL TAXATION IS COMING TO YOU Mark Britland, a partner at Magee Gammon, looks at the recent consultation documents issued by HMRC, “Making Tax Digital”. H M Revenue and Customs are intending that businesses and individuals will start to interact with them on a digital basis with effect from April 2018, and that they have a fully digital system in place by April 2020. What does this mean for both business and the individual? The intention is that most businesses, the self-employed and landlords will need to use computers and computer software (including apps) to keep records and update HMRC on a quarterly basis. This will be a requirement for all but the smallest unincorporated business or landlords (defined at present as a turnover or gross income of less than £10,000). The consultation proposes the end of the tax return, the ability to pay tax on the business activity during the year as an alternative to the current rules. All Tax information will be in one place, which should make it easier to notify HMRC of any changes, so for many businesses or their advisers there should be less contact with HMRC. The possible introduction of a new penalty based system, so that financial penalties are applied only after several failures, is relaxing the treatment for one-off errors currently. For the smaller business, allowing them to account for tax based on cash in and cash out, rather than having to apply accounting principles, is greatly simp lifying the process. At present a business may only use this method if it has a turnover below the VAT threshold of £83,000. HRMC are consulting on whether this limit should be in the region of £100,000 to £166,000. Businesses using the cash basis would not have to distinguish between capital expenditure (usually one-off expenditure in rest of assets for ongoing use in the business) or revenue expenditure (day to day expenditure often recurring), with the exception of excluded assets (such as property) making it easier for businesses to determine what 185 costs are allowable in calculating taxable profits. The consultation considers the extension of the cash basis to certain types of landlords, not based on turnover, but on whether it is an unincorporated business. Businesses and individuals will need over the forthcoming months, to review accounting processes and systems to ensure that they will be ready for the changes. For further information please contact Mark Britland at [email protected]