Business Owners – Are You Prepared For Digital Tax?

January 27, 2017 12:31 pm Published by

HMRC rolling out digital taxIf you’re a business owner, you should be aware of the big changes coming to the tax system –
with the HMRC aiming for a completely digital tax system by 2020.

This change is designed to make it quicker and easier for businesses and individuals to manage their taxes. The switch will require business owners to change their approach to tax slightly, with the biggest difference being the quarterly updating of their details to HMRC.

In this blog, we will cover what the changes to the tax system will mean for businesses, and what you can do as a business owner to ensure you are prepared for digital tax.

When Are Businesses Required To Start Reporting Tax Digitally?

Unlike Auto Enrolment, which started with the biggest companies – HMRC is starting digital tax with the smallest businesses first.

If you are a small, non-VAT registered business – you will need to be using the new system in your first accounting period starting 6 April 2018. From this point onwards you will be required to update HMRC quarterly for your Income Tax and National Insurance obligations through your accounting software.

For larger corporates, you will need to be using the new system to update HMRC quarterly for corporation tax obligations by 2020.

If you are an unincorporated business with a turnover of less than £10,000 you will be exempt from digital tax, however, we recommend familiarising yourself with the digital tax system as you may be required to use the system should you business status change in the future.

Benefits and Potential Drawbacks Of Making Tax Digital (MTD) For Businesses

Benefits:

  • The ‘real-time’ aspect of MTD will give businesses an estimate of how much tax they will owe, rather than having to wait until the end of the tax year to find out.
  • In the future, businesses will be able to link their compatible accounting software to their HMRC digital tax account.
  • The end of the self-assessment tax return. This should save business owners a lot of time. (Research carried out by YouGov found that 45% of sole traders spent 5 hours or more completing their tax returns!)
  • The simplified system could result in a reduction in the number of penalties or penalty rates for businesses.

Potential Drawbacks:

  • Dependent on individual circumstances, some businesses may be required to invest in hardware, software or external accountantcy services to remain compliant.
  • Submissions of accounts and tax returns will now have to be done on a quarterly basis, this could pose problems for business owners and may result in additional admin costs.

Will Businesses Need To Buy Any Additional Accounting Software?

Businesses will need to submit their tax information quarterly using software that’s compatible with HMRC’s systems, for SME’s and larger corporations this should not be an issue – as it’s likely they already have an accountant in place to deal with these changes or the budget to purchase any further accountancy software tools if necessary.For small businesses that don’t have accounting software – there may be an investment required to fully comply with the changes and avoid penalties.

Smaller businesses may also have to update their computer systems, purchase additional accounting software or assistance packages, hire an accountant or even employ additional staff to ensure compliance. However, HMRC has made the promise of ‘free apps & software’ being available:

David Gauke, financial secretary to the Treasury cited:

“HMRC will ensure that compatible software products are available to suit the budgets and needs of all businesses, including some free products for those small businesses with the simplest affairs.”

In addition to this, the HMRC has not yet specified whether spreadsheets will be a suitable format of record keeping for MTD, the potential exclusion of spreadsheets (something that many small business owners rely on) could see business owners having to face the extra costs of moving to accountancy software in order to stay on top of their quarterly returns.

What About Businesses That Don’t Have Access To Computers

For small businesses that don’t use computers or genuinely cannot use digital tools, HMRC has vowed that they won’t be forced to do so. Alternative methods of filing quarterly returns may be put in place, such as via phone or a nominated person will be put in place to file on their behalf.

Need a Hand?

Digital tax is coming, whilst the change should be beneficial for business owners – being unprepared may result in penalties or fines. We’ve been working alongside business owners for years, and understand the challenges faced by them, our accountancy services and software packages will ensure a smooth transition to digital tax.

For more information or advice on how we can help you ensure your business is prepared for digital tax,  give us a call on 0117 3700810.

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This post was written by Steph Roffey

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