This might sound a bit of a boring item, but it’s important for any freelancer creating comics or working as an illustrator, because UK government proposals to not only require quarterly tax reporting, but to also only file tax returns digitally seem well under way, despite concerns raising by small business organisations and the accountancy industry.
If the plans goes ahead on time, the changes to all-digital quarterly tax reporting will begin to be rolled out from 2019 onwards. Comic creators affected can find out more and how to respond to the plans, which are pretty unpopular with many, here on the UK government web site.
Consultations on plans for quarterly tax reporting for freelancers under the UK Government’s Making Tax Digital initiative end on 7th November 2016. If you’re a freelance comic creator or illustrator who think they may be affected by these proposals, part of a drive to make the UK one of the world’s most digitally advanced tax administrations, then there’s a decent round up of what’s proposed here on the Step.org site.
Back in August, when the consultations were launched, This is Money reported almost half of British freelancers and micro-businesses were in the dark on quarterly tax plans, first proposed by former Chancellor George Osborne.
The government has also been urged not to rush proposals through, post consultation, in order to have them in law next year.
The government says it is committed to reducing burdens for taxpayers and building a transparent and accessible tax system fit for the digital age.
Not only are there concerns that the implementation of Making Tax Digital might be rushed; tax and small business experts recently told MPs on the House of Commons Treasury Committee that the digitalisation of tax returns will impose significant additional tax compliance costs on small businesses for little or no medium term benefit.
Accountancy Age reports that few small businesses are aware of the planned changes despite the long consultation period. The Federation of Small Businesses the cost at around £2,770 per annum per business, and its leader Mike Cherry told the committee mandatory reporting was “wrong”, given that 75% of businesses do not keep detailed accounts electronically.
At this stage, the Making Tax Digital proposals only apply to sole traders – which most comic creators are – and partnerships. The website FreeAgent notes the consultation doesn’t address limited companies or their directors, which will be covered in a separate consultation later this year.
HMRC is also proposing that Making Tax Digital would only apply after £10,000 annual income or turnover, so a sole trader with one small business that makes sales under £10,000 a year would be exempt from MTD.
“Many small businesses are certainly not aware that this is coming” commented Mike Cherry of FSB, arguing it was creating “a perfect storm” in the wake of the national living wage and auto enrolment.
“We absolutely agree with the [MTD] pathway, but over a much, much longer period of time that businesses can get to grips with.”
Could Software Development Slow the Changes?
Of course, even if the plans go ahead as proposed, there’s still the hurdle of developing the software architecture to enable filing of all these digital returns. Accenture, which already runs the National Insurance and PAYE Service, won the IT contract with HMRC to provide a cloud-based system via its Newcastle offices for the individual taxpayers’ digital tax accounts, for personal tax reporting, a contract that will run until 2020.
Accenture is a global professional services company and provides strategy, consulting, digital, technology and operations services. Although its headquarters are in Chicago, it has been incorporated in Dublin, Ireland, since 2009.
Accenture’s Newscastle managing director Mark Larsen seems bullish about the digital tax project, saying the company would “radically transform and re-engineer the National Insurance PAYE Service applications and architecture, placing them at the heart of taxation for individuals”.
But, like many other software giants trying to develop IT services for public institutions worldwide, Accenture has had its fair share of implementation issues on numerous projects down the years. In August, Holyrood magazine noted the process of transforming HMRC’s IT systems and services has not been without trouble, with repeat warnings from MPs and experts that the authority was not fully aware of the scale of the challenge it was facing in moving to a digital system.
In July 2016, The Guardian reported Scotland’s police authority has abandoned a new unified IT system developed by the company after it was plagued with problems and in April 2016, the Kansas Health Institute reported in detail on the troubled implementation of a new high-tech Medicaid enrollment system with Accenture to replace a paper-based enrollment system. It went live in June 2015, but within months, organizations that serve Kansas Medicaid populations began reporting long waits for processed applications and the resulting fallout reveals a host of worrying concerns.
Previously, in 2014 the Washington Post also reported that Accenture, which had been appointed to fix the US health insurance web site HealthCare.gov, might be a favourite of corporate America “but has a record that includes troubled projects and allegations of ethical lapses”, cataloguing numerous IT projects that had gone awry, including Pentagon contracts and online voting projects in numerous US states.
Ironically, for a company with an annual income of some $28 billion busy making money out of ensuring tax collection, Accenture is one of several multinational companies that has been identified as being involved in wide scale tax avoidance.
In November 2013, an investigation by more than 80 journalists from 26 countries disclosed how some 340 companies from around the world had entered into an arrangement with state authorities in Luxembourg, that enabled them to avoid paying billions of euros in taxes. The agreements were described as “specially designed corporate structures” or “secret sweetheart tax deals” – all deemed to be perfectly legal.
Their findings suggested Apple, Google, and Amazon were at the vanguard of cross-border tax avoidance, along with other big multinational firms that included Accenture, Pepsi-Cola, Ikea, Burberry, Procter & Gamble, Heinz and others.
Based on an impact assessment, bureaucrats recommended and got the European Commission’s endorsement of legislation that would oblige multinationals to reveal their profits and the taxes they pay in every state in which they operate within the European Union.
HMRC cautioned on pace of change
In July, the UK’s spending watchdog the National Audit Office issued its annual report on the HMRC and the digital changes it is implementing, highlighting the projected cost savings, the planned closure of some 137 local tax offices and a 16% cut in staffing by 2021, to the dismay of both those employees and unions.
The report notes that HMRC was previously over-optimistic about how much change it could deliver all at once, and how fast it could reduce demand for telephone contact in particular. This resulted in a collapse of its service to personal taxpayers in 2014-15 and the first half of 2015-16. However, HMRC has since recovered the quality of its service to personal taxpayers by recruiting more staff and has adjusted its future resource plans in the light of this experience.
“HMRC is running a complex and challenging set of change programmes, and aiming to maintain service to taxpayers at the same time,” commented Amyas Morse, head of the National Audit Office.
“On the one hand, it needs to keep its nerve and commitment to its goals even if there are occasional setbacks along the way; on the other, it needs to ensure that it does not make the taxpayer underwrite the risk of failure through service breakdowns.”