What businesses should expect from ‘Making Tax Digital’
IN its 2015 spring budget, the government announced its plans to modernise the current tax system, with a view to requiring nonincorporated business (including landlords and sole traders) to submit quarterly tax information to HMRC from April 2018.
While the changes being introduced are designed to make tax affairs easier for businesses, it also presents the biggest shake up to the tax system for two decades, and as a result, hasn’t been without criticism.
Many felt the impact of digitising tax would hit small businesses hardest, the ‘backbone’ of our economy, which in turn saw some MPs call for a delay in the reforms. The government responded in the 2017 budget by allowing 3.1 million small businesses which operate below the VAT threshold one extra year to prepare themselves before they must submit digital tax records.
Those unincorporated businesses with turnover greater than £85,000, under current plans will still need to comply from April 2018. So what should you be aware of for your business?
Say goodbye to the annual tax return Efficiency was a key motivator for the government when changing how businesses supply tax records, culminating in one of the biggest reforms we’ll see; scrapping annual tax returns, for a quarterly update by businesses and a subsequent year end reconciliation. It could be argued this will create more work for businesses. However, advances in book-keeping software should help ease the burden.
Introducing a centralised digital tax account Under Making Tax Digital, each business will have a digital tax account and, even if you’re exempt from the digitalised tax processes on introduction, it’s advisable to set up your digital account sooner rather than later. This will be a centralised HMRC system where you can view and update your tax information. Many have welcomed this as a tailored service for businesses.
Software developers are currently working with HMRC to develop a range of commercial software packages, to ensure a smooth transition to the digitalised tax system from launch.
HMRC has also introduced a concession, to enable tax payers to continue to use spreadsheets for record keeping. This is a welcome allowance, but an additional software package would be required to make spreadsheets compliant with Making Tax Digital. As this concession has only recently been announced, software providers are under pressure to produce this software tool, calling on some in the accounting profession to delay the introduction of the new regime.
Real-time tax updates One of the key advantages Making Tax Digital will bring, is that business owners will no longer have to wait until the end of the year to find out their tax liability. The digital tax system will collect and processes tax in real-time, reducing repayments and tax-due from accruing; something businesses will certainly welcome.
Agent access Making Tax Digital will allow tax agents to access their clients’ data held by HMRC, when given permission to do so.
The ‘all-seeing’ approach will enable agents to give their clients greater clarity on their tax position for the year.
As so many of our services nowadays can be accessed digitally, it’s no surprise then that tax was next. Despite the initial outlay for every business to turn digital, the system should in theory make life simpler for book keepers. But for now, time will tell. For any help with the above issues, contact the team at www.ktsowensthomas.com