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What Making Tax Digital means for your small business

by Scott Brown | Mar 14, 2017
  • In the 2015 Budget Speech, George Osborne, introduced Making Tax Digital. This initiative is intended to digitise the UK’s tax system, marking the end of the paper tax return by 2020. The system aims to simplify tax administration in order to reduce government’s £8.2 billion tax gap.
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    Making tax simpler, better and faster

    The system is intended to create a transparent and accessible tax system that places less of a burden on the taxpayer. HMRC hopes to achieve this by:

    • Eradicating form filling
    • Reducing time delays
    • Providing access to digital accounts

    Each individual taxpayer will register, file, pay and update information at any time during the year. This will help prevent errors and omissions relating to income and expenses; increasing the amount of tax paid by small businesses by £870 million per year.

    See how other taxpayers have benefited from making their tax digital.


    Regular payments, fewer errors

    Taxpayers will send quarterly summaries of income and expenditure to HMRC and will be able to make voluntary, regular tax payments. A further end-of-year update will be used to ensure that the quarterly payments were correct as well as allowing for changes and claims.

    With this digital system, taxpayers will no longer have to give HMRC information they have in the past or which is available from other sources, such as employers, banks or other government departments.

    In addition to this, taxpayers will be able to see a complete financial picture of their digital account and offset under- and overpaid amounts against each other.

    Digital accounts will present a personalised picture of an individual’s tax affairs as well as provide prompts and support for filing. Businesses will be able to collect and process information affecting their tax liability in as close to real time as possible.

    What does this mean for small businesses?

    Businesses will be required to keep digital accounting records. This will allow you to keep your tax in line with your income and estimate how much your tax bill is likely to be. This way you can put an amount aside for settling your tax.

    When the system is implemented, sole traders and partnerships whose partners are all individuals will be able to use the cash basis of accounting, allowing them to work out profit based on cashflow, rather than income and expenditure.

    Are any businesses excluded?

    The smallest businesses, self-employed individuals and landlords will be excluded from the scope of Making Tax Digital where their annual turnover is less than £10,000. This is in addition to those who earn less than £10,000 from a secondary source.

    In addition to this, businesses trading below the VAT registration threshold will have the mandatory requirement for maintaining digital records and submitting quarterly updates, deferred from April 2018 to April 2019.

    Jim Harra, HMRC’s Director General, Customer Strategy and Tax Design, says “[Making Tax Digital] will help reduce the likelihood of errors, lower the chance of unwelcome compliance checks and give [businesses] greater certainty that they are getting things right.”

    Accountants dubious about Making Tax Digital

    HMRC has been asked to publish more details about its impact assessment and the cost to businesses of Making Tax Digital as industry bodies say its findings are optimistic. With Brexit looming large, many say that the introduction of Making Tax Digital could cause unnecessary headaches for small business.

    Although HMRC will not fine businesses for non-compliance in the first year of implementation, numerous bodies, including the Chartered Institute of Taxation (CIOT), Low Incomes Tax Reform Group (LITRG) and the Association of Accounting Technicians (ATT), agree that HMRC should further delay the start date for compulsory reporting.

    Mike Cherry, National Chairman of the Federation of Small Businesses, said, “The timetable…is unachievable given the latest delays announced. The programme cannot begin before 2020 without causing considerable disruption to economic growth, investment and employment.”

    In his Spring Budget speech, Chancellor Philip Hammond addressed the concerns around this timetable, announcing a one-year delay in the introduction of quarterly reporting for small businesses. This deferral is set to cost the Treasury £280 million between now and 2021/22.

    Ensure that your business’s accounts are ready to go digital. Contact us on +44 (0) 20 7759 7553 or send us an email to see how we can help.

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