Digital tax changes will mean revamp of SME financials, says JC

A digital transformation of the UK tax system will require Scotland’s SMEs to fundamentally change how they submit information to HMRC, according to Scottish accountants Johnston Carmichael.

The Revenue’s ‘Making Tax Digital’ project could introduce as early as April 2018 quarterly reporting for unincorporated businesses (sole traders and partnerships of individuals) and landlords; companies won’t be required to make the changes until April 2020.

New processes will require financial details to be submitted online, according to tax partner Peter Young, and will mean organisations must adapt their administration and reporting processes to meet the changed requirements.

Mr Young contributed to Johnston Carmichael’s response to the Government consultation on the project, which closed on November 7, and said more details could be revealed in the Autumn Statement on November 23.

He said: “The ambition and scale of this project is admirable, and the rationale for making things slicker and more in tune with the digital era is clear, but establishing new systems and processes in an already-tough business environment will be an unwelcome distraction for lots of our clients.

“As ever, the advice here is to get ready as early as possible. Should HMRC push ahead with these proposed changes it’s important to start examining your processes and speaking to your advisers about how best to make the necessary changes.”

The digital regime will also introduce new ‘penalty points’ for businesses which are late with tax reporting. Late submissions will attract points, and a fine will be levied once a certain level has been reached.

The changes were announced by former Chancellor George Osborne in May 2015, where he spoke of ‘the death of the annual tax return’. While this may have been welcomed by many at the time, the additional administration and record-keeping required for quarterly reporting could create an extra burden on businesses.

Mr Young said: “Tax is a headache for most businesses and few will welcome the extra administration these changes are likely to bring. Quarterly reporting introduces a time burden which didn’t exist before and most SMEs will need to find a way to manage this within existing workloads.

“Data security is an issue too and we’re moving away from email ourselves to allow clients to submit financial information via secure online portals, to improve efficiency and security.

“Ultimately these changes are coming, and it might be worth drawing parallels with the introduction of Self Assessment in the 90s. That felt like a major headache at the time, and there’s no doubt it was challenging at the beginning. However, once changes are introduced and systems and processes have been adapted, they very quickly become normal – but getting there can be a tough slog.”