HMRC: The Awful Truth About Making Tax Digital
Sole traders and partnerships beware ...
The tax man is drawing lines in the sand for every business in the UK to use digital accounting. In other words, forcing everyone to use computerised bookkeeping software. Unincorporated businesses are first in the firing, or filing, line ...
So the Making Tax Digital project kicks off in just 18 months time?
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HM Revenue & Customs issued 6 different press releases in August 2016 and their intention is to have all unincorporated businesses (ie sole traders and partnerships) submitting their information online quarterly from April 2018.
"That's in less than eighteen
This is not long when you need to implement a new system, learn it and make sure you are doing it properly. And the software companies will need time to make the tweaks and changes so that your software will be able to produce and send the necessary information to the taxman.
This is not long either, for the taxman to tweak their computer system, but quarterly online filing is now on its way. Yes, I'll repeat that because it's so important: Quarterly!
Limited companies don't escape, but they do get longer to prepare, with a proposed deadline of 2020 before they come into the Making Tax Digital quarterly reporting regime.
"This might sound boring, but it is very important!"
What does it mean for you? Well, if you run a business and your annual sales are £10,000 or more, then you will be caught by the rules! What do the rules mean?
You will have to use 'digital computer software' for your business's record keeping, and no Excel is not good enough! It has to be a proper accounting package!
You (or your accountants) will have to prepare and submit a quarterly tax return, sent online directly to HMRC's computers.
Every business and taxpayer will still have to check and make sure the information is correct ... and add in any details not already picked up in the quarterly reports on an annual basis via their digital tax account.
If you are VAT registered, then you will need to make quarterly payments of tax as well as VAT. The amount of tax will be based on your quarterly tax return. If your business is not VAT registered, then there is no obligation for quarterly payments (and presumably you continue to make either six-monthly or annual payments as at present).
This is a big change! Effectively every business in the UK will be preparing quarterly tax returns whereas at the moment you do this once a year. So four sets of deadlines with penalties if you miss them and four sets of accountants fees too!
What have you got to do?
The first point is start preparing now, don't wait! Start thinking about having proper accounting software and choose carefully. For example, don't get one that is free. Unless it already has the digital HMRC reporting facility, as otherwise they probably won't have the money to develop the software further and you will just have to change to a better software in a few months' time.
Another reason for making a change now rather than waiting is that you will need to get used to how the new system works and how you can make the most of it. You can't make the change immediately before the new rules start in April 2018 and expect everything to work perfectly right away! There will always be learning and transition challenges so get the transition out of the way in plenty of time before the new rules.
There are a number of good accounting packages out there, but consider choosing one that has automatic software upgrades built into it. I am sure that the software companies will use this as a chance to charge for updating desktop software, so consider going for cloud software that is continuously updated as part of the monthly subscription price.
If you are VAT registered and will be paying tax quarterly, then in the year of change you will have two years' worth of tax bills that you pay in one year! Make a plan or start saving now so you have enough money to deal with this by April 2018.
Of course, you might not like the way that the tax man is proposing to roll out making tax digital. In which case, complain to trade bodies like the FSB or Chamber of Commerce and write to your MP.
However, even if the taxman's plans are modified, the underlying plan of Making Tax Digital is still going to happen. This means it will be to your benefit to make sure you use a computerised accounting system sooner rather than later.
"If you would like help going digital, or getting a better software than you currently have, then get in touch!"
Xero, QuickBooks Online and others are all available and we can not only help you decide which one is right for you, but we can also do the hard work of migrating your data into your new system.
Until next time ...
Call me on 0333 335 0422 if you'd like some advice!
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.