Making Tax Digital: What does it actually mean for your business?
It's been in and out of our news feeds since it was announced in last year's budget, and there's been a lot of speculation about how the tax system's "digital revolution" will affect business owners. Many people were initially concerned that Making Tax Digital meant four tax returns would have to be prepared every year, meaning a large increase in admin costs and accounting fees.
There still isn't a lot of information out there, as the new proposals are still in consultation stage, but here's a brief summary of what we do know so far:
By 2020, most businesses with a turnover of more than than £10,000 per year will need to use accounting software to keep their financial records, and the software will then upload their records to HMRC every quarter. There's a similar system already in place for VAT-registered businesses to file their quarterly returns online.
The quarterly figures uploaded in the new digital system aren't expected to be as in-depth as a full set of annual accounts, and HMRC are planning to allow a month following the end of the quarter for the software to be updated and the figures to be filed on the business's online account.
What is this likely to mean for your workload? The government consultation reports say that there shouldn't be an increase in work - they may be right, or that could turn out to be slightly optimistic of them. What it does mean is that you will have to make sure your accounts are kept updated throughout the year, rather than collecting all your information together at the end of the tax year. (Of course, if you do normally only look at your books once a year, you could use this to your advantage and start to have a quarterly review of how your business is performing.)
The first businesses are scheduled to start moving over to the new digital system in 2018, and over the course of two years the Self Assessment tax return as we currently know it will be phased out.
Six consultations began last week, covering areas such as simplifying tax for unincorporated businesses, a voluntary pay-as-you-go scheme and the administration of the new tax system, and will run until November 7th this year. The details of the consultations have been published on the government's website (here's the link) as well as email and postal addresses to respond to the consultations.