When Will Quarterly Accounting for tax Purposes Come into Effect?...

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.

What would you prefer? A Real Time Accountant or A Redundant Historical Accountant?...

In my blog called “Making Tax Digital” dated 11th February 2016 I referred to being a “Real Time Relevant Accountant” rather than a “Historical and Irrelevant Recorder of Past Transactions”.   I used similar terms again in “More on Making Tax Digital” on 12th April 2016 and “The Four Foundations of Making Tax Digital” on 18th April 2016 when I used the terms  “Real Time Accountant” as opposed to a “Redundant Historical Accountant”.

I am obviously starting to repeat myself but for very good reason. 

To be a Real Time Accountant we need to have access to our clients’ data daily and that is simply not possible if clients are using manual systems, excel or even PC based software.  The introduction of cloud based book keeping systems such as Kashflow, QuickBooks, Sage One and Xero saw a massive opportunity to make this fantasy a reality.

The four Fundations of Making Tax Digital...

Between 2018 and 2020 the UK is going to see some quite monumental changes to the way that tax is dealt with, both for individuals and businesses alike. The government is embracing ‘The digital age’ by introducing measures that take advantage of everything that is good about modern technology. In this case, that is mainly the speed and efficiency it allows for fundamental parts of our lives. For many (even us at times) tax is a huge drag. It is slow, sluggish and bureaucratic. By making tax digital, this could all be a thing of the past. We hope so anyway.

David Gauke MP, the Financial Secretary to the Treasury and founder of this new and improved tax system, has outlined four foundations from which the changes will be built. He presents the changes as a transformation, with these specific areas used as platforms for what he intends to build.

Tax Simplified

The first ‘foundation’ revolves around simplicity. Much of what keeps tax at such a slow pace is the unrelenting requirement for forms and information. ‘HMRC requires X to deal with Y’. In a digital system, with an online account, this is likely to be a thing of the past.

The taxpayer will no longer have to tell HMRC what it should already know, or be able to find somewhere else. Through the creation of digital tax accounts, all data can be checked in real-time for accuracy, and the services supplied tailored to specific individuals. If an employer, bank, building society or government department has information about you, HMRC will find it and collate it all into a single account.

Making Tax Digital for Business

One of the biggest changes to business will be the ongoing updates of exactly what tax is due. Rather than have to wait until the year end to be given a sum, HMRC will instead collect and process this information, giving you a running total in close to live-time.

To make this possible, returns will now be due quarterly as opposed to annually. For incorporated businesses and self-employed individuals to be able to achieve this, cloud accounting software will be essential. Only by consistently updating your systems will quarterly reviews be possible though, which is why choosing a cloud-savvy accountant is vital. Did we mention that at Wood and Disney 100% of our accounts staff are Xero Certified Advisors, and very soon 100% will be Quickbooks Certified as well by the way? Just a little side-note there…

" Making Tax Digital will never happen!!!"

This was a comment made by another accountant about the move towards quarterly reporting from 2018 onwards. “My clients will never be ready.”

Perhaps this is more indicative of the accountant than his clients or perhaps we attract a more tech savvy group of clients because even our tradespeople are happily using our secure document exchange in the cloud to approve their accounts and returns. And we are having little resistance to our push to get our clients to move to cloud accounting which in our view is the only way to cope with the pressure of quarterly accounting.

To those doubters out there the following is a small extract from a recording of a House of Commons debate on quarterly tax returns in January 2016.

Comments from David Gauke, financial secretary to the Treasury.

“I reassure the House that HMRC does not intend to increase interventions on the basis of quarterly updates. On the contrary: HMRC is seeking to reduce error at source and so reduce the need for interventions. It is the case that by keeping records in real time instead of processing paperwork at the year end, businesses are less likely to lose receipts or make basic accounting errors.” 

Gauke said, “Keeping records digitally will reduce error, partly because that will be done on a more timely basis. Secondly, the data will allow HMRC to focus its attention on the small minority of small businesses that are evading their taxes, and not on those who are trying to get it right.”


Advice for Start-Ups-Part 7: output and input VAT, and VAT checklist...

Our first section Part 1: Taking the Plunge didn’t hold any punches when describing the difficulties of setting up a business. In the next section Part 2: Who am I? we helped you to picture the shape of your business and what it would be as a legal entity. Part 3: What does it take to succeed?  looked at the commonalities between many entrepreneurs and how those skills are needed for a business to work. The next section, Part 4: Taking on Tax ran head on into the often confusing area of tax, helping to ensure your business runs legally. Due to its size, the next section was divided into two. Part 5a: Accounting for bookkeeping gave tips on keeping accurate financial records, and explained why they are important. Part 5b: What records will you need to keep? did what it said on the tin and answered its question. The previous section Part 6: Registering for VAT and Taxable Persons and Supplies explained what VAT is, how to register, and who and what is taxable.

In Part 7, we will first look at Output Tax. There are three rates of VAT that your business could be subject to:

20%; this is the standard, most common, rate of VAT. This applies to the sale of standard-rated goods or services.

5%; this rate only applies to certain supplies, mainly fuel, power and sanitary goods.