Businesses will have to do all the tax digitally under the new system - Photo credit: Flickr, Images money [1], CC BY 2.0 [2]

The UK’s tax authority has said it will begin its year-long pilot of controversial reforms to the way businesses report their tax [3] with an invite-only trial.

HMRC said it will this month “invite some customers, both businesses and their agents, to sign up for a new way to report income and expenses online”.

The new system, known as Making Tax Digital system, will require businesses to keep digital records and file quarterly reports using software that is compatible with HMRC’s systems.

The aim is to reduce avoidable errors in tax returns – which HMRC estimates costs the public purse £8bn a year – but the government has come under fire for placing too much of a technological and financial burden on businesses.

MPs [4]and peers [5]have repeatedly called on the government to delay the start of the reforms, which are due to begin as early as April 2018 for income tax, after fears that the systems would not be properly tested before the start date.

However, HMRC has stood its ground [6] and insisted that a year is long enough to pilot the reforms, and has this week announced the first details on what the trial will involve.

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In a statement, HMRC said that the first invited customers will be able to start using accounting software to record their income and expenses, and to link that up with HMRC’s systems to file quarterly reports to the authority.

Those that are not invited to the pilot at the outset will not be able to start sending quarterly reports to HMRC, the statement said, but added that they would be able to start using accounting software to keep their records.

They will also be able to check if the software they use, including spreadsheets, is compatible with the systems needed for producing the quarterly reports.

However, HMRC said that it would not publish a list of software suppliers that have developed compatible software until “later in the year”.

The news follows the admission from Making Tax Digital’s programme manager Theresa Middleton [8] that there would “not be a full range” of software and apps before the pilot started.

Speaking at a committee hearing in front of members of the House of Lords Finance Bill Sub-Committee in February, Middleton said that the “worst-case scenario” was that some providers’ software would not be ready until October.

Some of the “established players…might not be ready” for the start of the trial, she said, because they tend to have a longer lead-time than the newer entrants.

But she stressed that there would still be a range of products available for smartphones and desktop computers during the trial, and that all suppliers would have products ready by the go-live date of April 2018.