You will no doubt have come across the phrase ‘Making Tax Digital’ over the past few months or so, but what exactly is it, do you need to know about it, and more importantly, do you need to do anything about it?
In a nutshell, Making Tax Digital is a Government initiative which aims to make the tax system fully digital. But why? Well, the thinking behind it is that it will make all the admin associated with HMRC and tax returns simpler, more efficient, easier to understand, and here’s the biggie – the end of the annual tax return by 2020.
However, before you get onto a table and start dancing in celebration, you’re not getting away with it that easy!
Most businesses will end up having to submit quarterly tax returns instead, but don’t panic, it doesn’t mean four lots of pain a year as opposed to one – it really is going to make it all a lot easier.
And it also means that HMRC will be able to use PAYE information to make adjustments to tax codes throughout the year in real time, avoiding over and under payments at the end of the year. Less correcting after the deed is done.
And get this, it means that it’ll be easier for HMRC to link up with other institutions (such as banks etc.) to be able to get information about you to save you the trouble. It’s joined up thinking by HMRC which will ensure that any information it has on you is as accurate as it can be.
Well, that’s the big plan anyway, but you know HMRC! There are likely going to be amendments, delays and u-turns before this is all in operation.
But for now, here’s what’s going to happen.
Digital tax accounts will be rolled out, which will enable taxpayers to log on and view all their tax liabilities in one place, so it will be a lot easier to see how much you owe. Allowing you to better plan, and for no huge unexpected tax bill to land on your doormat sending you all in a panic.
At the moment, the smallest businesses are exempt from this scheme, but over time, this will be rolled out to everyone, self-employed people and landlords, essentially, anyone who has to submit a tax return. This isn’t going to be mandatory until April 2019 (latest update) and then only for people to meet their VAT obligations. So only those businesses who have a turnover above the VAT threshold.
However, it is coming, there’s no doubt about that, and it will affect everyone, so it’s better to be prepared and get your accounts up to date and online as soon as possible – it will make the transition so much less painful.
There is lots of digital support already out there from HMRC to help small businesses and the self-employed in anticipation of this move, but one of the best things you can do, (if you don’t already) is move your accounts onto cloud-based software, as this will make it easier to transition and integrate with HMRC’s online system. Real-time updates, less chance of error and a better insight into your finances is something which I wholeheartedly advocate.
So although the plans are still in consultation, there’s still tweaks and amendments to be made, it shouldn’t mean you sitting back on your laurels.
Use the time now to get your accounts into shape, online, and ready to be able to produce reports as and when HMRC decides it needs them.
But don’t panic, you don’t have to do this alone! If you want to know more about the scheme, or get the process underway now to do what you need to do, then get in touch, and we can make tax easier to get digital.