Self-employed made to file tax returns digitally

Almost all self-employed workers and more than a million small business owners will have to file their tax returns digitally. HMRC has already forced companies with a turnover of more than £85,000 to file digital VAT returns and keep records using special software. It now plans to make companies with revenue below this threshold do the same from April 2022. The following year, the rules will also apply to self-employed workers filing tax returns for income above £10,000.

ALMOST all self-employed workers and more than a million small business owners will have to file their tax returns digitally following a Treasury shake-up.

The changes are part of a massive push by Her Majesty’s Revenue and Customs to cut errors, reduce fraud and improve productivity – but it is feared they will saddle millions of hard-pressed workers with needless costs and extra red tape.

HMRC has already forced companies with a turnover of more than £85,000 to file digital VAT returns and keep records using special software.

It now plans to make companies with revenue below this threshold do the same from April 2022. The following year, the rules will also apply to self-employed workers filing self-assessment tax returns for income above £10,000.

Some 1.4 million Vat-registered businesses and 3.4 million self-employed workers or landlords will be impacted by the changes.

Jesse Norman, a Treasury minister, said the plan will help firms “keep on top of their tax affairs” and has “huge potential to improve the productivity of our economy”. But business leaders fear the costs involved could hit some companies hard just as the economy struggles to recover from the coronavirus pandemic. Mike Cherry, chairman of the Federation of Small Businesses, warned that firms already affected have been forced to spend an average £564 adapting to the changes.

He said: “The last thing we need is wholesale expansion of Making Tax Digital without the right support in place. Done wrong, this would mean more costs and paperwork for small firms at a critical time.”

A Treasury spokesman said: “Making Tax Digital supports productivity, helping businesses to save costs, as they spend less time on tax admin,” but Suren Thiru, head of economics at the British Chambers of Commerce, said the expansion is “an unhelpful added cost and administrative burden” for firms.

The announcement came as the National Audit Office revealed that HMRC has saved billions of pounds from slashing tax avoidance by a quarter and boosting compliance in the past few years. The tax gap – the difference between the amount of tax owed and how much HMRC gets – dropped from 7.2pc of expected tax in 2013-14 to 4.7pc in 2018-19.

HMRC compliance efforts boosted tax revenue by £34.1billion in 2018-19 but more than £30billion was still lost annually, the NAO said.