First to Go Digital for Tax
August 31, 2016
Partnerships, sole traders, and landlords will be among the first to join HMRC’s brave new digital world in 2018. This will revolutionise the way many keep their books and accounts. It is HMRC’s hope that by 2020 the tax return as we know it will have been entirely abolished.
From April 2018, all but the very smallest of unincorporated businesses and landlords (turnover less than £10,000) will be required by law to keep their records on accounts software. Many people already do that – but there will be an additional requirement in that, the software must be capable of sending information to HMRC every three months. At present, there is no software on the market capable of doing that, but we know that the major software developers such as QuickBooks and Sage are working on it.
Chiks SE+ is a new style of accounting for anyone that is self-employed and for forward thinking small enterprises. Blending trusted business advice with the very best in cloud-based accounting software.
HMRC call this project “Making Tax Digital” (MTD). The idea is that everyone will use MTD-compatible software, to record all their business transactions. Every three months, the software will (“at the push of a button”) send the data to HMRC. These three monthly uploads will not be accounts as such, and will not include such things as stock valuations or tax adjustments. HMRC are therefore proposing that businesses and landlords will have nine months after their last quarter to make any tax and accounting adjustments required to calculate their tax payable.
While information will be submitted quarterly to HMRC there is no intention at present to make the payment of tax quarterly. The payments date of 31 January, and 31 July if payments on account are required will remain. Taxpayers can, however, make more frequent payments if they chose on a voluntary pay-as-you-go basis. HMRC are currently looking at various incentives to encourage PAYG payments of tax.
VAT returns are of course already submitted quarterly, and HMRC is looking at whether the VAT return will be combined with the quarterly MTD submission.
MTD will be a massive change for all businesses, but particularly so for those who have always kept their records manually, and give their records to their accountant once a year. After April 2018, everyone will be required to use software of some sort, and keep records in real time. In fact, many businesses are doing this already, and finding it easier than they first thought! Cloud-based systems also offer the advantage of allowing the accountant to ‘log in’ to review how things are going through the year. And it is surprisingly inexpensive. HMRC have also promised that free software will be available for smaller businesses.
MTD is also a huge project for HMRC. There have published six separate consultation papers, and will be drafting new legislation to put it into effect. There are lots of questions to be answered and details to be ironed out. Perhaps the April 2018 start date will be put back a year. But MTD is coming, so do watch this space for further information and feel free to speak to us about the accounting implications.
Victoria Dadswell is a tax planning manager at Chiks. Contact Victoria on 01524 62801.