In his 2015 budget, the then Chancellor of the Exchequer George Osborne announced the death of the tax return. Ultimately, this means that individuals should be able to update an online ‘digital account’ with information about their income and expenditure. The long term idea is that many items of income will be included on an individual’s digital account automatically, since HMRC are receiving more information from third parties as part of the Common Reporting Standard initiative launched in 2017.
It is worth noting that serious concerns have been raised about the timescale of introducing the proposed changes, not least from the House of Lords sub-committee which said that the proposals as they stand make tax more burdensome for individuals rather than making it easier! Much of the detail is yet to be determined, but taxpayers do need to be aware of the prospective changes and how they will impact on their particular situation.
The policy will be introduced gradually, and only those with sole trade income or rental income above the £85,000 VAT threshold will need to start reporting digitally from 6 April 2018. Taxpayers with sole trade income or rental income below the VAT threshold but above £10,000 will need to start reporting digitally from 6 April 2019. When the digital system applies, taxpayers will need to report income and expenditure at least every three months. For the first group of individuals in the new regime, the first quarterly update will be due by the end of June 2018. Once all four quarters are submitted there is an obligation to file a ‘year-end declaration’. This is generally due on 31 January, but can be filed as soon as all four quarterly updates have been completed. Under current proposals, only rental and trading income can be reported digitally. Individuals with other sources of income or capital gains will also need to file a tax return.
A Frequently Asked Questions section is below, but please do let us know if you have any queries about what this will mean in your situation.
Frequently Asked Questions
Who needs to use quarterly reporting?
From April 2018, only those with rental income or self-employed individuals with a turnover above the current VAT threshold will need to submit quarterly accounts. There are exceptions for the ‘digitally excluded’ – although it is not entirely clear who falls into this category. However, if you use Charter Tax for your tax compliance, you will be able to file even if you do not have access to digital services yourself.
How will the reporting work?
Individuals required to report their tax affairs digitally will need to:
- Maintain their records digitally, through software or apps
- Report summary information to HMRC quarterly through their ‘digital tax account’ on a quarterly basis
- Make an ‘end of year’ declaration to HMRC through their digital tax account
The quarterly updates will be due within a month of the quarter ends – if you have submitted information before the quarter end (for example, for a two month period rather than a three month period), HMRC have confirmed that you will also need to make another submission for the actual quarter end. The quarterly updates do not have the same weight as a tax return, and HMRC do not have the right to enquire into the figures; it is only when you make the year-end declaration that the numbers will be treated as final.
What records do I need to keep?
Records of income and expenses do not currently need to be kept digitally. HMRC have yet to finalise the list of records that need to be kept and preserved, and there have been discussions during the consultation process about whether a spreadsheet is sufficient. You will need to keep “transaction level data” in a digital format. It may be that a spreadsheet is sufficient, although this is yet to be confirmed. For sole traders, transaction level data will need to include the following:
- Invoice date
- Invoice value
- Income or expense category
- Deducted amount / percentage for expenses
For rental properties, transaction level data will include the following:
Date rentals are due (and date paid for cash accounting individuals)
- Rental value
- Invoice date and value for expenses
- Expense category
- Deducted amount / percentage for expenses
While only the totals will be uploaded to your online tax account with HMRC, we understand that you will be required to keep transaction level data on suitable software. Charter Tax can maintain your bookkeeping records for you – please let us know if you would like to know more about this service.
Can I use my own software to submit the quarterly updates?
Yes – HMRC have confirmed that there will be software available to use. The software will be produced by third parties, and HMRC will not guarantee that any particular software is safe to use – they will only produce a list of software that is compatible to upload information to the HMRC platform.
Charter Tax will continue to use its current software which will be updated to include the ability to make quarterly reports. This means that the reports that we send you will look familiar, and that we will have continuity from prior years.
Will I have to make payments on account quarterly?
No – the existing payment dates of 31 January and 31 July will continue to be in force and you will not be obliged to make estimated tax payments more than twice a year. There is a concern among some that HMRC will in the future seek to move estimated payments to a quarterly basis, but HMRC are not changing the payment dates at the present time.
For further advice , please contact us using the details below:
Janet Paterson: firstname.lastname@example.org
Jane Hodge: email@example.com
Tom Barker: firstname.lastname@example.org