25 Jul UK Taxes are going digital – Are you ready for it?
UK Taxes are going digital – Are you ready for it?
The digital world has changed almost implausibly since the beginning of this century and is continuing to change at a rapid pace. More and more services are being made available online from booking your train tickets, to making a doctors’ appointment, doing the weekly shop, to further education, promoting your business and online banking. In fact, millions of people and companies are benefiting from the practicality and ease of services going digital.
HM Revenue & Customs (HMRC’s) are now also getting in on the act. Digital tax accounting is being set up, which will bring all individual and business tax information into one place, making it easier for you to register, file, pay and update your tax information online at anytime.
Digital Tax Accounts
Digital tax accounts are Personal Tax Accounts and Business Tax Accounts. If you have income taxed under PAYE and are also self-employed or have rental income and the total of your self-employment and rental income is under £10,000, then you will no-longer need to complete a tax return.
With the new system you will only need to update your digital tax account. HMRC intends that any tax due will be collected through your tax code. Digital Tax Accounts have been generally available since April 2016.
Timescale of going digital
There is a detailed timeline in the Making Tax Digital roadmap see HMRC “making-tax-digital”.
On the current schedule, the self-employed and those with rental income as their main source of income (or, where it is a secondary source, it is £10,000 or more) will be expected to update HMRC with business information for tax purposes quarterly from April 2018, with SME companies following by 2020.
Should I be worried about it?
HMRC have made it clear that the annual taxation period (6 April to 5 April) is here to stay, that going digital is about making life easier and we won’t be required to file quarterly tax returns each year. What they are suggesting, given that we will be required to have a digital tax account, is that we update them quarterly, based on the information held in that account.
Providing that you have taken steps and are ready for this quarterly filing requirements, then you shouldn’t worry. If you haven’t taken the steps, then don’t panic, you have until 2018.
How can we help?
We don’t see any problem with digital tax accounts. At Makes Sense Accountants, all our clients work on cloud based accounting software (see our blog) that enables us to work with them every month and ensure everything is up to date. Then each quarter we check progress against their goals and plans for the year and talk through any issues in the business and plans for growth.
Our clients can see at any point what they are building up in income tax, corporation tax & VAT (if applicable), as well as dividends, so they are fully aware of their liabilities and what they need to make provision for.
The problem is not all accountants have the expertise on cloud accounting and thus, their clients have to wait until their year-end before they get their annual tax return prepared. So it’s no wonder that some small businesses are worried about plans to report quarterly with an annual relationship like this, as the leap for them is massive.
So for any business out there already using cloud accounting, well done! Stay with it and your life’s really not going to be any different. If you’re not using cloud accountancy then perhaps now is the time to make the switch.