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Biggest change to the tax system in a generation.

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In the latest UK200Group blog post, Trevor Cook, Partner, Baines Jewitt Limited, discusses the copious upcoming changes at HMRC.

Trevor Cook
With the appointment of Microsoft’s corporate vice president, Jacky Wright, as HMRC’s new chief digital and information officer recently, there is little doubt that the Government means business when it comes to the widespread transformation of its mainstream tax systems.

Although Jacky has only just got her feet under the desk, she seems raring to go, announcing that ‘there could not be a better time in the history of technology to demonstrate the power of technology innovation at an organisation such as HMRC.’

This, along the government’s major policy initiatives, such as Making Tax Digital (MTD), mean you don’t have to read between the lines to see that key changes are in the pipeline.

With HMRC’s ambition to become one of the most digitally advanced tax administrations in the world - modernising the tax system to make it more effective, more efficient and easier for customers to comply - the tax revolution is certainly upon us.

Although there will be some exemptions, digital changes will have a significant impact on thousands of individuals and businesses of all sizes and sectors throughout the UK. For example, through MTD many businesses, landlords and the self-employed, will be required to report to HMRC on a quarterly basis, via digital software.

Against this backdrop, there have been worries about the potential costs of putting MTD reporting software into place to comply with these measures. In addition, many stakeholders have expressed concern that the timetable to get MTD up and running is too soon.

The good news is that due to such feedback, the pace and scale of change for the introduction of MTD for Business has been amended. This should smooth out any potential issues and ensure businesses have plenty of time to adapt to the changes.

For example, the first businesses have already started keeping digital records and providing updates to HMRC as part of a live pilot which will test and develop the MTD service for income tax and National Insurance Contributions. A wider live pilot up will begin in Spring 2018.

As a result, businesses will not be mandated to use the MTD system until April 2019 and then only to meet their VAT obligations. This will apply to businesses which have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can do so voluntarily.

The government has also said it will not widen the scope of MTD for Business beyond VAT before the system has been shown to work well. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread.

Despite more frequent reporting requirements, it is worth highlighting that the new digital system is designed to be more efficient and make it easier for individuals and businesses to get their tax right, whilst ensuring HMRC is not suffering from lost revenue. In 2014 to 2015, for example, over £3.5 billion of revenue was lost due to mistakes in VAT returns alone.

Overcoming avoidable errors will also reduce the uncertainty and worry caused to businesses when HMRC needs to contact them to clarify any anomalies.

We only have to look to other new digitally-based HMRC systems, to weigh up that there should be time and costs savings in the long run. For example, more than one million tax credit customers completed their renewal using the new online tools ahead of the 31 July deadline for the first time this year, reducing the demand on HMRC phone lines by around 20%.

As with many major advances, there will always be those who are opposed to change. There will also be those who do not feel comfortable using digital systems. However, there are plenty of professional organisations on hand to offer high quality advice and guide businesses and individuals through any concerns.

It goes without saying that millions of individuals and businesses now run their lives digitally, whether it’s for banking, purchasing or communicating. So it seems to make good sense to take the UK’s tax systems in the same digital direction.

As a firm of chartered accountants, tax specialists and business advisers, we strongly recommend that businesses plan ahead so they have plenty of time to keep abreast of the new technology; adapt to the changes and seek professional support, if needed, in setting up and managing their new digital tax system.

In short, don’t get left behind and don’t get caught out.

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