Smaller businesses: A chance to turn back the tide of regulation

 Do you:

• File a tax self-assessment for business (say as a sole-trader) or
• Have property income (such as rents) greater than £10,000 per annum?

If so, it will pay you to read on.

HMRC’s Making Tax Digital (MTD) regulations currently only apply to businesses registered for VAT with turnover greater than £85,000.  However, under their current plans, from April 2022 all tax payers who file income tax self-assessments for business or have property income of more that £10,000 per year will be brought into the net of MTD.

This will mean if you fall into either of these categories, from April 2022 you will need to keep your business or property records electronically and file quarterly returns within one month of the quarter’s end.

At present, if you are below the £85,000 VAT threshold, or not registered for VAT, you only need to complete your annual tax return, once a year, with nine months to do it in.

HMRC believes this will help your cash planning and make tax compliance less burdensome.  It’s a reverse engineered argument, of course, because the real reason is to try and close the tax gap and to cut down on HMRC operational costs through IT although to what extent it will do so and how much of the tax gap is due to these very small businesses and landlords is unknown and a matter for debate.

I think we can debate whether keeping records electronically for a small landlord with one property will actually improve their record keeping or not (£10,000 per annum income is, at the most, one property level in most cities, if not elsewhere) .  What is more questionable is whether forcing somebody to make a return five times a year (four quarterly and one annual return) will achieve anything at all.  What is beyond doubt is that five filings a year with four of those having a one month deadline will increase the workload and massively increase the sheer angst of being a small business or small property owner.

If you are a pensioner with a small property portfolio to supplement your meagre state pension – and a lot of people are in that position – then forget the four week holiday cruise you were saving up for:  you’ll need to employ an accountant or make sure your holiday doesn’t coincide with a state mandated quarter end.  And woe betide you if you fall ill.  These may be trivial examples and easy to deride, but they show how the state is continually becoming more and more demanding and less and less sympathetic.  There is no good reason for requiring vast numbers of small businesses to be given these sorts of deadlines when nine months has been felt to be reasonable before.

Mind you, if you don’t feel you want to buy and learn how to use accounting software by April 2022, you’ll need to employ that accountant to do the work for you in any case.  Time to put your prices or your rent up to cover the admin and angst.

The good news is that whilst this proposal was announced by HMRC last year, because of COVID-19, the changes necessary to implement it have not yet been included in a budget.

 So there is still time, if you think these demands are unacceptable, to let your MP know.