GDPR has been a hot topic for many business owners over the last year or so. Hopefully, you’re in a good place with personal data privacy now that the date of enforcement has passed. Are you ready to start looking at the next compliance issue.
Making Tax Digital is a government transformation programme that aims to modernise the UK's tax system, making it less burdensome for businesses and sole traders to comply with their tax obligations.
The programme will see business records shift to a digital format. Business income and expenses will be submitted quarterly to the HMRC, along with an End of Year final reconciliation submission. Ultimately, it means the death of the tax return.
In the long run, Making Tax Digital can only be a good thing, but businesses and individuals may have quite a bit of work to do in the meantime, to get ready for the transition.
What does Making Tax Digital mean for businesses and sole traders?
It’s a programme that affects all business owners, large and small. Even if you’re a freelancer or tradesmen with no employees, you’ll be required to comply.
The first businesses to be affected by Making Tax Digital will be those that are VAT registered. HMRC will require that business records are kept on commercial software and that VAT returns are filed quarterly online to leave less room for taxation errors and intervention.
For businesses who currently use a paper-based or spreadsheet accounting system, this may present a few challenges. Firstly, not everyone may be up to speed with digitalised systems. Comprehensive software training will likely be needed.
Secondly, investing in software is another business expense to consider. Smaller VAT registered businesses with low-level profits may worry about finding the money to purchase a system.
Lastly, transitioning from one accounting system to another takes time (and the right skills). VAT registered businesses will need to comply by April 2019 - that’s why planning ahead for Making Tax Digital is vital.
But what about businesses and sole traders that aren't VAT registered?
Well, if you're in this category, you will be affected too, but not until later. Thanks to Brexit, HMRC are pushing back broader compliance until at least April 2020 (unless you want to opt-in voluntarily before then). The exact date for the roll-out is still to be confirmed.
Currently, the jury is out as to whether businesses that aren't subject to VAT will be required to use commercial software. HMRC seem to understand that some business owners may have simpler accounting needs and as such, they are encouraging software companies to make basic spreadsheet-style systems available free of charge that will comply with the programme. However, whether or not this happens remains to be seen in the months to come.
Why is Making Tax Digital a good thing?
Accounting convenience
Many of us bank online because it’s easier to manage our finances and see our balance quickly when we need to. The idea of Making Tax Digital is that it will work similarly. Businesses will have a clearer picture of their business income and expenditure and be able to see their tax liabilities in real-time.
Fewer tax errors
HMRC will be able to streamline the data they hold about businesses and individuals and process information relating to taxes in as close to real-time as possible, meaning that tax errors are less likely to happen.
Better communication with HMRC
Businesses will be able to contact HMRC through their digital account when it's convenient for them. HMRC support will include secure messaging and webchat.
How BCT Accounting can help
Making Tax Digital compliance is only around ten months away if you're VAT registered. If you're reading this and you don't know where to start regarding getting ready for it, rest assured we can help!
No matter what type of system you’re using at present, we can assist you in setting up a compliant accounting software solution to suit your budget, and then train you to manage your bookkeeping and returns digitally.
For more details on Making Tax Digital or our services, please get in touch.