T: 01206 233170 E: email@example.com
The idea behind Making Tax Digital is HMRC believing that all businesses both big and small will make fewer errors if they maintain their records more regularly. They know that many small businesses only write their books up once a year when demanded by their accountants. HMRC also believe that this lack of regular book keeping is losing tax for the Treasury not only because of errors in recording income and expenditure but also because the time delay between earning money and having to pay the tax is so long that often businesses go bust before they actually pay up.
So everyone will have a digital tax account…there will be 50 million of them. Third parties will be able to automatically fill them with details of your income. So for example income from employers, pensions and even banks will be automatically fed into your Digital Tax Account. However the missing link is that only you or your accountant representing you knows how much you are earning from your business. So the obvious solution is that you will be forced to provide details of any income (and expenses) which cannot be auto-filled on a quarterly basis.
So all self-employed people will have to keep their accounts in a digital form (not on excel), and summit summarized information. But we still don’t know in exactly what format this summarized information will take.
How do I prepare for this?
Business is changing and faster than ever before. And accountants are no longer immune to these changes.
Three major things are changing:
1. The demystifying of accounting
2. The rise of the “Real Time Accountant”
3. Fees based upon time spent encourages inefficiency so are being replaced with fixed fees.
The demystifying of accounting
Cloud accounting software has taken the accounting industry by storm. As traditional firms continue to resist its rise in popularity and relevance, more modern, progressive accountants are embracing the revolution and encouraging their clients to do the same. The arrival of the government’s Making Tax Digital initiative (http://www.wood-disney.co.uk/blog-post/making-tax-digital) will also make cloud accounting a necessity as opposed to a luxury, so it is important that everyone understands the value that having an effective online system can have on their business.
At Wood and Disney we utilise a whole host of cloud accounting platforms for our clients. Xero, QuickBooks Online, Kashflow, Sage One, FreeAgent; if our clients want to use it, then we aim to become experts in it. We have been following this trend for many years, well before the government made their Making Tax Digital announcement in fact http://www.wood-disney.co.uk/online-bookkeeping-xero-freeagent-sageone-kashflow.
We have always seen the benefits, and have looked to propose those benefits to each client who works with us.
Hopefully by now it has become obvious we are clear advocates of the opportunities created by Making Tax Digital. As technology becomes an even more ever-present part of our lives, the transition from paper to digital processes will revolutionise our industry and send us hurtling towards a more advanced future. The changes proposed have been developed to speed up the tax process and deliver a fatal blow to the dreaded tax return. It will centralise your tax affairs, and make businesses and individuals alike more efficient.
There is though, amongst more traditional (outdated) accounting firms and various sections of the media, a fear of the inevitable change. Concerns have been raised, especially when it comes to small businesses and the impact that moving away from conventional record keeping will have. Many of the issues that have been raised are simply not as monumental as we are led to believe, and actually show a lack of understanding as to the positives of the new process.
So HMRC have decided to address these concerns, and attempted to dispel the five main myths surrounding Making Tax Digital:
Businesses will need to complete four tax returns in a year.
The inevitable transition to quarterly tax is drawing ever-nearer. As HMRC’s revolutionary movement towards digital taxation begins to gain momentum, it is vital that businesses start to note down the timetable for who is going to be affected by the changes and when they will come into effect.
At present, accountants and tax advisors across the UK are being urged to attend education events that will help them adapt their services to quarterly reporting. The more progressive firms are attending and learning well in advance. The more traditional ones…well, let’s just say that when the changes do come, a lot of businesses are going to be making a lot of very difficult decisions about who manages their tax affairs.
Everyone will have to report quarterly, with no exceptions. The timetable for changes is below:
5th April 2018 Sole traders and partnerships under the VAT threshold and individuals with non PAYE income of more than £10,000 per annum.