Six need-to-know facts to help you prepare for Making Tax Digital
With the first stage of the government?s digital tax initiative arriving in 2018, Susan Rahman, chief product officer at accounting tool?Onkho, gives an overview of the incoming changes to help small business owners prepare for Making Tax Digital.? By 2020, most business owners, self-employed people, and landlords will have to use digital tools for their tax affairs. They?ll also have to provide a quarterly update to HMRC via online accounts. It?s part of Making Tax Digital, a new government initiative designed to modernise tax affairs. Many of the changes associated with this have been well received. However, not everyone is completely enthusiastic. Some businesses have criticised the scale and speed of the change, believing that HMRC?s rollout has not fully taken small business owners? needs into account. Research conducted in February 2017 by the UK200 Group ? a leading association of independent chartered accountants and law firms ? suggested that some 65 per cent of members weren?t using software to manage their tax accounts. The government has tried to meet small businesses halfway on issues such as using spreadsheets, but there remains some hesitancy and confusion over Making Tax Digital and what it entails. So, let?s clear it up. Here are six things your business needs to know to prepare for Making Tax Digital.
Why is it being introduced?
The point of Making Tax Digital isn?t to make life difficult for businesses. In fact, Making Tax Digital is there to help business owners understand their taxes better, and prevent avoidable errors. The overall aim is to give business owners confidence in their tax affairs and their cash flow strategies ? reducing their admin burden and making life easier. It?s the transition to Making Tax Digital that causes potential awkwardness.
Who does it affect?
Pretty much everyone who makes and files a tax return. That means businesses, landlords, individuals, and non-profit organisations ? everyone except pensioners, people who are paid through payroll/PAYE, or people with a secondary income under ?10,000.
When does it come into effect?
It depends. Your VAT threshold is probably the most important metric. If your income tax and national insurance contributions (NICs) are over the threshold, the deadline is April 2018. If they?re under the threshold, the deadline is April 2019. The general deadline for corporation tax submissions is April 2020.
How will it change the way I record tax?
How?won?t?it? In many respects, Making Tax Digital is a completely fresh way of reporting on, updating, and filing these records. It?s a comprehensive digital solution that accounts for all tax affairs using software and apps. In other words: you won?t be using spreadsheets anymore unless, for some reason, you absolutely insist on doing so.
How will it change the way I report tax to HMRC?
You or your accountant will now be required to submit tax reports on a quarterly basis, instead of once-yearly. Digital tools will make this (admittedly, unappealing-sounding) process a lot less stressful than you might assume.
What are the advantages for my business?
Happily, Making Tax Digital offers several advantages for businesses. First and foremost, it?s a secure, easy, and fast means of paying online. But there?s more to it. By using digital accounting solutions, you?ll be better placed to see all your tax information, liabilities, and claims in a single place. This limits the possibility of mistakes and ensures that you only ever pay the tax you actually owe. This scrutiny also means that HMRC?is less likely to audit your company. Making Tax Digital also ensures that you think of tax more often. If that doesn?t sound particularly fun, at least it?s useful. You?ll have a clearer understanding of how much you owe and when you owe it ? instead of waiting until year-end and navigating the seasonal chaos. If you forget, HMRC will offer digital nudges and prompts to ensure that you fill in the right details at the right time. This assures better foresight and financial planning, and will ultimately result in spending less time updating HMRC on your tax affairs ? giving you more time to focus on business growth. Adjusting to Making Tax Digital might not be easy for businesses, but businesses will be better for it. This kind of legislation often comes with growing pains, but in the end, paying your company?s tax will be greatly simplified. Revealed: HMRC?s ten most?ridiculous self-assessment tax expense claims
As many as seven in ten small UK business owners remain unaware of the upcoming digital tax transition, according to new HMRC research, leading to calls for further efforts to inform and support small firms of new obligations. more»