Business needn’t be taxing

September 14, 2017 10:53 am

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Benjamin Franklin said there were only two things certain in life: death and taxes.  Recent recommendations have included simplifying taxes in order to make the whole tax arena more business-friendly.  Moreover, the Making Tax Digital initiative through HMRC provides a way to do this through increased use of technology.

Corporation tax simplification

The Office of Tax Simplification has produced a report outlining ways to simplify Corporation Tax.  In short, the independent adviser to government on tax simplification has called for this tax to be modernised and simplified.

In summary, the recent report sets out significant steps towards creating a 21st-century corporation tax system in the UK.  This is in response to calls from businesses of all sizes to make corporation tax calculation simpler, with fewer changes and more time to plan. It also recognises the importance of reducing the burdens on small business.  At the same time as keeping this country an attractive destination for trade and investment in a post-Brexit world.

The report takes a look across four broad themes:

  • simpler tax for smaller companies
  • aligning the tax rules more closely with accounting rules where appropriate
  • simplifying tax relief for capital investment
  • a range of further issues affecting the largest companies

It also highlights the links with HMRC’s work on Making Tax Digital.  This offers a real impetus towards a simpler system through using technology.

Angela Knight is Chair of the OTS Board.  Angela commented: “Despite recent attention received by corporation tax, particularly regarding multi-nationals, there has been little focus on simplifying it. In response, the main recommendation is that the government should develop a clear and coherent roadmap for corporation tax simplification.  This would give certainty to all companies.”

The report makes recommendations to achieve this objective in a variety of innovative ways.  In addition, it sets the scene for further work on the costs and benefits of moving to a depreciation-based approach.  This would give relief for capital expenditure, offering a significant simplification for companies of all sizes.

Making Tax Digital

New timetable

The government has set a new timetable for businesses moving to the new digital system for keeping tax records.  This will require businesses to submit accounts quarterly, instead of annually.  The government says it has listened to concerns raised by parliamentarians, especially the Treasury Select Committee, businesses and professional bodies about the pace of change.  It is therefore taking steps to ensure a smooth transition to Making Tax Digital (MTD).

Under the new timetable:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from April 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least April 2020

This means that the pace at which businesses and landlords with a turnover below the VAT threshold will be slowed.  As a result, allowing these smaller businesses to adapt over a longer period of time.

Voluntary arrangement

However, MTD will still be available on a voluntary basis for the smallest businesses, and for other taxes.  HMRC expect many of these businesses, and their agents, to take the opportunity to provide quarterly updates for other taxes, but there will be no requirement to do so.  Similarly, businesses that are not VAT registered and those below the VAT threshold who have voluntarily registered for VAT can opt to join Making Tax Digital for Business (MTDfB).  HMRC remain confident that many businesses and agents will choose to use MTD voluntarily.  These will then benefit from a streamlined digital experience where they can integrate tax into their day-to-day business record-keeping.  In this way, they will have the confidence that they have got their tax right.

In short, this means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.  All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.

Transition testing

HMRC are fully committed to supporting businesses in this transition.  HMRC has already begun piloting the MTD services and will continue to do so, thereby testing the system extensively with businesses.  It will start to pilot MTDfB for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018.  This will allow for well over a year of testing before any businesses are mandated to use the system.

Ministers have also confirmed that the Finance Bill will be introduced as soon as possible after the summer recess.  This will legislate for all policies that were included in the pre-election Finance Bill, raising over £16 billion across the next five years to fund vital public services.  The government has also re-confirmed that all policies originally announced to start from April 2017 will be effective from that date.

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