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UK Announces Exemptions From 'Quarterly Reporting'

The UK Government has announced that unincorporated businesses with a turnover of less than GBP10,000 (USD12,970) will not be subject to the new filing requirements it will introduce as part of its Making Tax Digital project.

The Government has published six consultation documents relating to the project. It had previously announced that, by 2020, most businesses, self-employed people, and landlords would be required to "keep track of their tax affairs digitally and update HM Revenue and Customs (HMRC) at least quarterly via their digital tax account." The proposal had been criticized by tax professionals and the Treasury Select Committee, with concerns expressed about the introduction of changes intended to simplify tax reporting but which were seen to require taxpayers to more regularly expend efforts to comply, on a quarterly rather than annual basis.

The Government has now confirmed that the reforms will not apply to unincorporated businesses or landlords with an annual income of below GBP10,000. It will also defer the mandatory start date of the Making Tax Digital requirements by one year for the next tier of small unincorporated businesses and landlords with annual incomes of above GBP10,000 and below an as-yet-undetermined threshold.

Unless a business has been explicitly exempted, Making Tax Digital will become the default method by which it is required to manage its tax affairs. Businesses with income tax, National Insurance, value-added tax, or corporation tax obligations will all come within the scope of the new requirements.

Jane Ellison, the Financial Secretary to the Treasury, stressed that companies will not be required to draw up a set of accounts each quarter. In her foreword to the consultation document "Bringing business tax into the digital age," she said: "This reform does not mean 'four tax returns a year.' In fact, it will eliminate the burdensome annual return and simplify tax for businesses."

Explaining the rationale behind the project, Ellison said that it will "transform HMRC into one of the most digitally advanced tax administrations in the world."

Ellis added: "All individuals and small businesses will have access to simple, secure, and personalized digital tax accounts. By 2020, we will have abolished the tax return entirely. Most businesses, self-employed people, and landlords will keep records digitally and update HMRC more frequently than is currently the case."

"For the majority of businesses, the transition to the new system will be straightforward. Many businesses are already using digital tools. For those businesses who aren't already keeping records digitally, there will be free software and straightforward advice on how to use it. The small minority who genuinely cannot use digital tools will not have to do so."

The Chartered Institute of Taxation (CIOT) welcomed the announcement. Adrian Rudd, Chair of the CIOT's Digitalisation and Agent Strategy Working Group, described it as "a step in the right direction in terms of HMRC taking into account that all businesses in the UK do not have the same time, resources, or ability to manage such a huge change."

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