Switch to digital can prove taxing

Accounting for tax digitally will soon become a reality for sole traders and partnerships and therefore farming businesses throughout the country need to start preparing for implementation now.

It is an issue which will not go away since the Government intends sticking to its original timetable of an April 5 2018 implementation date.

This despite a barrage of objections, none more so than from the Treasury Select Committee itself.

Getting taxpayers to improve their bookkeeping is a good thing.

It will not only ensure that records are kept up to date, but should also provide businesses with information to help run the business.

Forcing some businesses to adopt changes when they are nowhere near the start line is unfair and will present a real challenge.

HMRC need to consider carefully how they progress to keep the public onside.

To be fair, they have been warming business up for this over the last few years with compulsory VAT return completion, RTI for payroll and, more recently, auto-enrolment, all carried out online.

This change to online digital accounting, however, will be revolutionary for many businesses.

The Government, through HMRC, chose January 31, the tax return deadline day, to issue its response to the consultation process, paying little heed to the majority of concerns in the rush to close what they see as an £8 billion a year tax gap lost as a result of avoidable taxpayer error by small business.

Some of the main points brought out by HMRC in their response are:

1 All self-employed businesses with turnover under £10,000 per annum will not have to adopt making tax digital, unless they wish to do so. This limit is ridiculously low.

2 Those who use spreadsheets to record transactions rather than specific accounting software can continue to do so, provided the spreadsheet can link to compatible software to automatically generate and send their updates to HMRC. A welcome concession, but note that paperless means paperless and those using traditional books must start to implement change now.

3 Businesses eligible to produce three line accounts will be able to submit a quarterly update with only three lines of data – income, expenses and profit.

4 Businesses who genuinely cannot get online because of individual circumstances, such as disability or remote geographical location outwith a broadband connection, will be exempted.

5 Taxpayers will be given a period of at least 12 months before they are charged any late submission penalties.

6 Allowing businesses with turnover of less than £150,000 to use the cash basis for accounting and promising to simplify the rules on capital and revenue expenditure within the cash basis to make it easier for business.

With an expected implementation date less than 14 months away, some businesses have much to do and that preparation should start now otherwise MTD may not stand for Making Tax Digital, but instead Making Tax Diabolical.