The government’s new Making Tax Digital scheme gets rid of the annual tax return and replaces it with 4 quarterly tax updates. So you would think that means doing 4 tax returns a year. As more details about Making Tax Digital are released people are beginning to think that the real number could be higher. People are suggesting that small businesses could be forced to do 5, 6 or even 9 tax returns per year. The government’s justification for this, of course, is that it will make life easier for small businesses and the self-employed than doing 1 tax return.
4, 5 or 6 tax returns
When Making Tax Digital is introduced all self-employed people and small businesses will have to do 4 tax updates a year. They will also have to do an ‘end of period’ statement once a year. This will confirm that the previous four tax updates have been correctly. Many people are seeing this as a 5th tax return.
Once the 4 tax returns have been done, and the ‘end of period’ return has been done a ‘final declaration’ will also have to be done. The final declaration will cover any income not already declared such as income from savings or income from a job if a business is being run as a hobby or to earn some extra money on the side. This comfortably takes us to 6 separate tax returns.
10, 12 or more tax returns
Making Tax Digital was originally sold as ‘the end of the tax return’. As we have just seen there are now going to be 6 tax returns for every small business and self-employed person. However, that is only looking at the simplest scenario.
It has been suggested by tax specialists that a business or self-employed person will have to do a separate set of 6 returns for each ‘trade or business’ undertaken. So, for instance if someone was working as a consultant but also had a property that they rent out then they may need to do two lots of 6 tax returns, a total of 12.
If a business was VAT registered then they would have to do another 4 tax returns on top, making a total of 10, or potentially even 16, tax returns per year.
When will people make money?
So, if self-employed people and small businesses are going to be doing 6, 12 or even 16 tax returns a year the obvious question is when will they have time to make any money? Not only does the government say that Making Tax Digital will save small businesses time they claim it will rise more tax.
As an online accountancy company specialising in small businesses and self-employed individuals we know that most people are going to want some help with their tax returns. With a bit of practice some businesses may be able to do some of the 6, 12 or 16 tax returns themselves but many will choose to pay to have an accountant do them to save time. The government do not want small businesses and self-employed people to use an accountant. All of their calculations for how much extra money Making Tax Digital will bring in are based on self-employed people and small businesses not spending any money on accountants. However, if self-employed people and small businesses are going to be doing 16 tax returns a year themselves when will they have time to make any money to pay tax on?
#saynotoMTD – Find out how you can join our campaign to Say No to Making Tax Digital