MAKING TAX DIGITAL FOR BUSINESS

There is a change looming, and it is probably going to affect you and your business. Earlier this year, HMRC announced an overhaul of VAT 100 submissions.

The Government recognises that businesses will all want to get their tax right, but the latest tax gap figures show that too many otherwise compliant businesses struggle and as a result, over £8 billion a year in tax is lost.

HMRC wants to do more to help businesses get their tax right and these changes are an important step in the right direction. It will help businesses steer clear of avoidable errors.

Businesses will be able to keep records of their income and expenditure digitally, and send summary updates quarterly to HMRC from their accounting software.

Businesses, self-employed people and landlords will be required to start using the new digital service from:

• The start of April 2018 for income tax and National Insurance contribution (NIC) purposes if your turnover is over the VAT threshold
• April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold
• Also, April 2019 for VAT purposes for everyone who is VAT registered
• Finally, April 2020 for Corporation Tax purposes for everyone who pays it

What are the changes?

Making Tax Digital for Business is a Government project that will put all your tax information together in one place. It’s one of the most significant reforms to the tax system, affecting all businesses with a turnover of £10,000.

The biggest change will be the replacement of the annual tax return with quarterly reporting from April 2018 for small businesses with a turnover above the VAT threshold of £85,000.

Why is the Government making tax digital?

Accurate Tax Information

Replacing paper-based bookkeeping with digital tax accounts will let you check that the information HMRC holds about you is 100% correct.

Reduced Errors

Making Tax Digital’s new reporting function will allow HMRC to look at accurate tax information almost immediately, reducing human error from data input.

Easier to Understand

HMRC believes taxpayers will better understand how much tax is owed within the digital tax account – similar to online banking.

Easier Contact with HMRC

Making Tax Digital will make it easier for you to contact HMRC online via webchats and secure messages.

These changes will provide the legislative framework so that businesses will:

• Keep track of their tax affairs digitally using accounting software or apps. Regulations will specify what records must be recorded using digital tools.
• Provide summary tax data to HMRC quarterly, using digital tools. The summary tax data will be automatically generated for the business from the electronic records. For VAT, these quarterly updates will effectively replace the VAT return. For Income Tax and Corporation Tax, these updates will cumulatively build an in-year picture of the business’ tax position for them.
• Gain a clearer view of their tax position in-year.
• Provide a finalised end of year position to HMRC of their tax affairs, again, using accounting software and digital tools.

So, what next?

Don’t think of making tax digital as just another obligation. This is your opportunity to regularly check income, expenses and profit in your business which will help you make better decisions. Take these two steps to help make the transition smooth:

1. Figure out when you have to make your tax digital. You can make your tax digital right now, and there’s no reason to wait till the last possible moment to do so. But you do need to know when it will become compulsory for your business.
2. Consider accounting software. You don’t have to use accounting software to comply with making tax digital but it will make things easier. It will also give you access to other powerful tools.

Making tax digital could be really good for your business

Change can often seem daunting, especially when it requires you to adopt new technology. However, quarterly tax filing could actually lessen your workload and by updating your accounts more often, you’ll be able to react faster to opportunities and threats in the business!

We can help you when it comes to the best accounting software for your business, and as outlined above, you can see the benefits of using accounting software when moving towards the new VAT 100 submission changes!

To have a chat with one of our Business Software Consultants, give us a call on 0191 500 8150, or email info@monpellier.co.uk.