Making Tax Digital - What We Know
If you’re a small business owner, then you should be aware of the impending shift to digital tax.
This quantum change, which will see HMRC digitise the tax system by 2020, is an exciting shift and it is intended that it will make it quicker and easier to manage taxes without having to fill in so many forms.
We can all look forward to a tax system which is frequently updated over the course of the year, allowing you to keep tabs on things so you know how much you have to pay in advance. Instead of putting all your financial admin to one side and processing it all in one go, this new system will make it far easier to budget and keep your tax affairs in order throughout the year.
But are you ready for the change?
Here are three ways to ease the transition:
1. Know how your business will be affected
From April 2018, many of the UK’s small business owners will need to start updating HMRC quarterly using the new digital system. While this means you no longer have to wait until the end of the tax year to find out how much you owe, it also entails new responsibilities. You will have access to a personal online account which you are required to update; it will prompt you when action needs to be taken and includes support via webchat and messaging.
The government has recognised that such a significant change will take time, and some businesses will now be exempt from the new digital record-keeping and quarterly updates. Whether you’re compelled to go digital by 2020 or not, now is still a good time to investigate what your business could gain from making the transition. You can find out more about HMRC’s proposals by reading the Consultations issued on 15 August 2016.
2. Start embracing new technologies
One of the biggest barriers to the government’s ambitious programme will be comfort in using new technologies. To those still keeping paper records, going digital might feel a little daunting, but millions of businesses have already found that using software and apps makes their lives easier. The cloud allows you to manage your accounts online, wherever and whenever it’s convenient. It may take some time to familiarise yourself with this new technology, but it will definitely be worth it.
3. Take early action
HMRC will begin testing the digital reporting feature with a few chosen small businesses before the end of the year. They also intend to authorise certain accountants to manage their clients’ digital tax accounts this year. By early next year you will be able to report secondary sources of income through your digital tax account and by the end of next summer you’ll be able to update both income tax and National Insurance contributions via your online accounting software.
This incremental process of feature deployment will continue over the next four years, until the digital tax system completely replaces the current one. Going digital one step at a time will make it a less onerous process for your business.
The most important thing to remember is that there is no need to panic. The new system will be implemented in stages from April 2018 to 2020 so you have plenty of time to adapt to these changes and feel confident managing your finances and taxes online.