Tax & admin · 18 January 2016

Insider expertise from Xero on the government’s transition to digital tax accounts

Gary Turner and Xero will be guiding businesses through the transition
Gary Turner and Xero will be guiding businesses through the transition
In response to confusion amongst the British micro and small business community regarding the upcoming quarterly digital tax returns, Business Advice asked Xero’s UK MD Gary Turner for more detail.

As a cloud-based accounting platform used by thousands of small businesses throughout the UK, Xero has been working closely with the government and its Digital Strategy?. Part of that strategy involves the move to take tax returns online, and introduce quarterly reports rather than the traditional end of year dump.

The system will replace the current self-assessment tax return process undertaken by millions of business owners and the self-employed each year. The headline details include the requirement for all businesses, contractors and sole traders to manage taxes and accounts online by April 2018.

According to HMRC, the online portal will effectively serve like an online bank account allowing people to register for new services, update information and understand what needs to be paid, without having to fill out a tax return again.

With upwards of 85 per cent of self-assessment tax returns being done online, the government and HRMC feel it is a natural extension to take it fully digital.

Xero is currently providing services to 100, 000 businesses in the UK, companies which are already thinking digitally and wanting real-time access to sales figures, tax details and payroll numbers. Customers like these will be able to link business accounting software to a digital tax account, rather than running each separately.

if you look at the way that small businesses tend to operate, over three million in the UK are 1-2 people running on spreadsheets and bags of invoices and receipts, Turner said.

moving to a platform like ours, it is the first timethey have invested in a proper system a real step up coming off manual systems.

The increasing relevance of mobiles and tablets in the business world is reflected in Xero’s product offering. If we all decided to quit our jobs and set up a business we would be unlikely to go to PC World and buy a PC each. Wed be on Google Apps, Office 365 and use social media rather than the old specification.

Turner believes that the traditional office environment is decreasing in relevance, with it only being a matter of time before every business is running accounting in the cloud.

if we accept businesses will migrate or start in a digital way, then the [digital tax accounts] transition becomes easier and smarter. Essentially, the government recognises it needs to change what it means with VAT and tax returns it’s all about becoming smarter, he explained.

Pinch points

Research carried out by Xero at the end of 2015 found that 65 per cent of British small business blamed financial issues, such as cash flow visibility and access to capital, as a reason for failure.

Xero and Turner see the new digital tax accounts agenda being pursued by the government as a major part in making micro and small businesses more aware of what the current financial situation is.

For those that fear the new digital tax accounts transition period is a disaster waiting to happen, Turner pointed to what has been achieved with Real Time Information (RTI) and PAYE. Having first been announced in 2002, RTI took ten years to finish but is now firmly imbedded in business practice.

Part of how the government and HMRC plan to come good on the ambitious five-year full roll out plan involves the range of open application program interfaces (APIs) set to be built. Businesses and software companies will then be able to use these APIs to help bring about efficiencies.


 
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ABOUT THE EXPERT

Hunter Ruthven was previously editor of Business Advice. He was also the editor of Real Business, the UK's most-read website for entrepreneurs and business leaders at the helm of growing SMEs.

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