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HM Revenue & Customs (HMRC) hopes to ease the move to digital tax submission for UK businesses, following criticism from MPs that the programme was “overambitious”.
The department has published its response to a consultation on plans to make all firms submit tax returns digitally, starting from 2018. After more than 3,000 responses to the consultation, HMRC has announced a series of measures intended to smooth the transition.
The taxman will conduct pilots with “hundreds of thousands” of businesses to help them prepare for the changes, and will also allow firms to keep using spreadsheets to record their finances before linking to software that will upload their accounts to HMRC.
The department confirmed plans to provide free software to small firms that might otherwise not be able to afford to buy new systems, and said “businesses that cannot go digital will not be required to do so”.
HMRC will also give companies 12 months to get used to the new process before enforcing penalties for late submission.
The three-year transition from the current system to the new Making Tax Digital programme is expected to cost UK businesses £1bn – which works out as £280 per company, on average – before delivering savings of £100m per year from 2021.
Earlier this month, MPs on the Treasury select committee called on HMRC to delay the digital tax project, warning that the deadline of April 2018 was “overambitious”, with insufficient time to prepare for “such a fundamental change”.
Read more about Making Tax Digital
- The National Audit Office called on HM Revenue & Customs to increase transparency and assess how moving to a digital tax system will impact businesses and individuals.
- HM Revenue & Customs published an IT strategy outlining how it plans to transform its IT estate by taking a platform approach, moving to virtual infrastructure and cloud-based services.
- MPs urged HMRC to push back the go-live date of its Making Tax Digital project amid concerns over costs, software and readiness.
However, HMRC’s response was clear that it intends to stick to the planned timetable, with the new measures intended to make the transition easier.
“We know that the majority of businesses want to get their tax right first time, but the latest tax gap figures show that too many find this hard, with more than £8bn a year lost in tax as a result of avoidable taxpayer error by small businesses. Making Tax Digital will help businesses to get their tax right first time,” said Jim Harra, director general for customer strategy and tax design at HMRC.
“The appetite for digital services is growing, and traditional paper-based processes make no sense in the 21st century where the vast majority use digital services.”
In September 2015, HMRC launched an application programming interfaces (API) strategy, with an API developer hub following a few months later. The aim is for suppliers of accounting software to interface with HMRC automatically through the API hub and test their products in advance of the digital tax deadline.
Brigid McBride, deputy director for HMRC’s digital service, told Computer Weekly in August 2016 that 18 software developers had signed up to help test the hub.
“The work we’re doing with the developer hub is building the underlying technology that will allow them to test the software well ahead of the launch date,” she said at the time.
HMRC received £1.3bn as part of the government’s 2015 spending review towards making tax digital. The roll-out of online personal tax accounts for individuals started in December 2015.