When it comes to tax, IT Contractors shouldn’t believe what they read in the press!
Posted on 22nd May 2017
Be-IT works with a lot of contractors. They are, obviously, self-employed. They are in great demand just now and generally earn a lot of money and pay a lot of tax. If they work in the public sector they have had all the fun of IR35* recently and, irrespective of where they work, have also had the ‘threat’ of ‘Making Tax Digital’ (MTD) hanging over them, with the expectation that they would need to invest in some superior form of cloud accounting software if they want to do their accounts and pay their tax properly.
The MTD project has been around for some time now. The accountancy profession had picked up on HMRC’s intention to make businesses file quarterly tax returns some time go, but it wasn’t until the mainstream media started reporting on this, around late summer 2016, that most people became aware of MTD’s existence. It has been described by the accountancy bodies as the biggest change in taxation since self-assessment, so clearly it is important.
The, entirely understandable, thinking behind MTD was to make business and HMRC more efficient, come into the digital age, etc. and to reduce the amount of tax that goes unpaid due to errors and tax avoidance. Although HMRC deny that the purpose is to collect tax more frequently, I would not be surprised if that becomes an objective in the next few years. MTD was supposed to begin in 2018 and, in preparation, several thousand small businesses are currently taking part in a pilot scheme. This is intended to see how well the available proprietary cloud accounting software performs. Whether contractors liked it or not, it was obvious that they were going to have to start using such software to keep their accounts, and not spreadsheets or all those scraps of paper receipts/invoices gathered together in what a friend refers to as an ASS (advanced shoebox system).
That was fine, but then someone decided we need another election. Consequently, as the last government threw together all the essential items it wanted to get through its last finance bill, it was decided that MTD wouldn’t be included. This was seized upon by some in the press and interpreted as meaning that the whole project was being scrapped. Indeed, if you simply read the headlines, you can get a false picture. A quick Google search reveals stories headed, “HMRC’s Making Tax Digital plan dropped from Finance Bill”, “Controversial digital tax returns delayed after being dropped”, “Government removes Making Tax Digital from Finance Bill 2017”, “Finance Bill: Making Tax Digital Shelved” and “Making tax digital dropped from Finance Bill – NFU welcomes news”.
The general impression given is that the can is being kicked down the road. The election and the need to try to make a success of Brexit (whoever wins the election, some taxes are almost certain to increase) will undoubtedly concentrate minds in other areas. However, if anyone thinks that they can forget about Making Tax Digital, can I respectfully suggest that they should think again. My friends in the accountancy world assure me that HMRC has invested far too much to allow the project to be scrapped. As I noted above, the pressure on them to get in as much tax, as quickly as possible, will increase – always bearing in mind that HMRC’s proper function is to collect all the tax that’s due. Public opinion will support them, because most people are, I believe, not happy when they see or hear of examples of aggressive tax avoidance, especially when it’s done by big corporations. Consequently, Making Tax Digital is not going away, so if you haven’t yet thought about using cloud accounting software now is a good time to investigate it.
Gareth Biggerstaff, MD, Be-IT Resourcing
* despite the previous government’s denials, some think IR35 may be extended to the private sector in the next parliament. We shall doubtless find out more once the election’s over…
Posted in Opinion, Recruitment News
.. Back to Blog