The HMRC have recently released some more information on their scheme ‘Making Tax Digital’. In this post we’re going to be looking at why they’ve decided to act now and how it will impact the typical small business.
The HMRC believes that implimening this will ensure they recieve all the tax they’re due. There is a belief at the HMRC that the ‘tax-gap’ will be made smaller by making tax digital. Submitting information online to the HMRC has been around for quite a while now but specific rules regarding how that information is held is new and will require some adjustments for many small businesses.
Making Tax Digital has 3 main points that need to be considered.
1. Bank Transactions and other financial information will upload directly to a business’s digital tax accounts. Regardless if they submit these as income and expenditure.
2. It is highly likely that Quarterly submissions will be required in the near future.
3. You’re going to need to start using software that can integrate with your digital tax account.
How Will Making Tax Digital affect Small Business?
Firstly, You’re going to have to use software to keep track of your accounts. This won’t be a big problem for companies that already use their accountant for bookkeeping etc but there are still a few businesses that keep a box of paperwork in the shed. The HMRC have said they will provide free software but it is likely to be basic (if it’s anything like their basic PAYE tool) and may not be sufficient for many businesses.
The HMRC believe that part of the ‘tax-gap’ is down to poor record keeping. I am not convinced this is true and putting in place more submissions might not be the answer. In our experience, we find under claimed expenses is a bigger issue and not under declared income as the tax man seems to assume.
The planned roll out is from April 2018 starting with non-VAT registered self mployed businesses, all VAT registered businesses by April 2019 and finally everyone will be expected to be enrolled by April 2020.
Fortuntately, the HMRC has confirmed they will accept a 3 line upload for smaller businesses. Income, Expenses, Profit.
We are keeping a close eye on how this progresses and are working closely with our partners at Sage to ensure we have everything in place when required but if you do have any questions please contact your relationship manager with any questions.