South Coast: PKF Francis Clark assesses tax-system shake-up

PKF Francis Clark, the accountancy firm with offices across the Solent, considers the timescale in the plans to implement a major shake-up of the tax system by 2020 “challenging”, as the plans constitute the biggest change in the tax system since the introduction of self-assessment in 1996.

HMRC has issued six consultation documents, which run to 243 pages and 129 questions, on the Making Tax Digital (MTD) project which will require unincorporated businesses and landlords to update HMRC quarterly via digital record keeping and software.

However important exemptions have been announced for landlords and small business owners with income below £10,000 although the final figure is yet to be confirmed. They will not need to report quarterly or keep records digitally.

In addition, unincorporated businesses or landlords with income in excess of £10,000 but below a yet to be determined limit, will be able to defer for one year the requirement to move to MTD. The project is also expected to have measures to try to minimise tax administration for small businesses, including an expansion of cash accounting.

For partnerships and jointly-held property, a nominated partner or property owner will make the submission to HMRC rather than each individual partner or property owner. This is expected to dramatically reduce the number of tax returns required.

Taxpayers with non-UK income and gains are likely to have to continue reporting foreign income annually.

Certain community bodies are likely to be excluded from MTD. However, those currently permitted to file on paper, such as insolvency practitioners, will have to move to electronic filing. 

There will also be an opportunity for taxpayers to voluntarily pay tax throughout the year “as they go”, with a new acronym, PAYG.

Julian Smith, tax partner at PKF Francis Clark, described plans to have the new system fully in place by 2020 as "a challenging timescale".

He added: "It will remain important for those with complex tax affairs to make sure that they are getting good advice and assistance with their tax compliance – most notably those with non-UK income sources and complex capital gains.

"It is also noticeable that the language HMRC is using has softened slightly and the end of the annual tax return by 2020 is now more of an 'ambition'. Altogether, the documents show a greater realism by HMRC and a desire to focus on the areas where the most impact can be made. HMRC do expect these changes to be modestly revenue raising.”