Will Sweeney is corporate tax manager at accountancy firm, Menzies LLP.
Many small and medium-sized businesses are justifiably concerned that HMRC’s plans to introduce mandatory digital quarterly reporting could be onerous and deliver little value in terms of reducing red tape and providing management insights.
HMRC is currently consulting on its plans to introduce digital quarterly reporting for most businesses by 2018 and while there is a lack of certainty at the moment about what form the new rules will take, it has tried to reassure businesses that only ‘summary’ information will be needed. Despite this, some SMEs are concerned that the extra information and record keeping needed to complete the new quarterly reports will be time-consuming and difficult to provide.
In theory at least, digital quarterly reporting should bring benefits for many businesses; helping them to manage their accounts by giving them better access to information about their tax liabilities as their financial year progresses. Depending on the level of information that is required in the summarised reports, the system should allow them to view information about all their tax liabilities, including VAT, Corporation Tax and PAYE, all in one place. This could be useful to some businesses; giving them access to better quality information about their overall tax liabilities and allowing them to offset any overpayments against underpayments as they go. For businesses that already operate digital accounting systems, or for those with relatively simple tax affairs, filling out the new returns and uploading them to HMRC once a quarter should be relatively trouble-free.
However, the system is unlikely to work well for everyone. One of the main issues is that the new system may not make it easy for all businesses to consider the range of adjustments that might be needed to see a true picture of their tax liabilities and this could give them a distorted view of their finances. There is obviously a risk that this could lead to bad decisions being taken based on incomplete or inaccurate information.
Some businesses are concerned about where the move to quarterly reporting might lead. In particular, there is concern that it could lead to quarterly payments, which would represent a significant administrative burden and could have a negative impact on cash flow. Many smaller traders that lack an in-house accounts team and don’t use any accounting software are also concerned that, depending on the scope of the summaries required by HMRC, the new system could be costly and time-consuming to administer and could lead to errors.
At this stage, the only real reassurance for SMEs will come when HMRC publishes the details of its consultations later this year and sheds light on the nature of the summaries that will be required. However, with mandatory quarterly reporting due to start in 2018, it is vital that businesses are ready to move quickly to adopt any new software and applications that are made available.
Non-VAT registered businesses will be among the first required to comply with the new system, to be followed by VAT-registered businesses from 2019 and companies from 2020. While it is understandable HMRC wants to start with smaller businesses, which are likely to have relatively simple tax affairs, these traders are also more likely to be keeping their records manually and therefore the shift to digital reporting could require more support.
Whilst waiting for further clarity, businesses should be discussing these changes with their professional advisers to assess how they will be affected and to minimise any risks during the adoption of the new system.