Making tax Digital - Part two“Making Tax Digital”- Part Two

What does it mean to you?

What does “Making Tax Digital mean for us the small business owner, well in a nutshell – It either means extra hassle that you could do without or extra cost and in truth probably both.

The government is hailing this as good news for all business owners as they will get a clearer view of their tax position in year!  Don’t get me wrong I’m all for business owners “knowing their numbers”.   However, there are many thousands if not millions of business owners who don’t currently keep their records using Book-keeping software. 

For them it is likely that they will have to keep records of income and expenditure digitally and send updates quarterly to HMRC from this software.  It could be like submitting your tax return four times a year rather than once!

Let’s be honest, this will require a shift in mindset of the business owner who does not keep records on a regular or even monthly basis and the “carrier bag of receipts” will have to be a thing of the past.  Believe it or not in this era of technology, paper records with little or no regular bookkeeping are still a very common occurrence.  

This will increase the burden on the small business owner as they will need to outsource at increased cost to the business or find the time to do this themselves. Business owners will have to do their bookkeeping REGULARLY and certainly QUARTERLY to potentially TIGHT DEADLINES for submission! 

How many business owners have the time for this even if they have the desire?

In the “Making Tax Digital” consultation which was only released on 31st January 2017 it did say:

  • Businesses will be able to continue to use spreadsheets to record receipts and expenditure which they then can link to software to automatically generate and send their updates to HMRC. However, before you breathe a sigh of relief the consultation document did say the spreadsheets must meet the necessary requirements for “Making Tax Digital” – this is likely to involve combining the spreadsheet with software – which may mean it is easier and cheaper in terms of time and associated costs to just go to a commercial technology solution like Xero or one of the other cloud accounting solutions.
  • Free software will be available to a majority of the smallest businesses – but we don’t know how this is defined yet or when it will be available!
  • Some businesses may be eligible to submit a quarterly update of three numbers only (income, expenses and profit), however they will still need to keep all their records in detail first to pull this information together.
  • All self-employed businesses and landlords with a turnover under £10,000 a year will not have to keep their records digitally.
  • Charities will not have to keep their records digitally or make quarterly updates.
  • Customers (HMRC wording not mine!!) will have at least 12 months to become familiar with the changes before any penalties for late submission. By the way we don’t know yet what these penalties are!!  HMRC will consult again in the spring on this!

 

I’m sure you are getting the message that this is going to be a massive issue for many business owners and at the moment it will be implemented to aggressive deadlines.  Of course we don’t have massive amounts of detail on how it will all work yet!  Let’s hope we get some clarity soon. 

In the third instalment, I’ll set out who will be affected first and the timescales and the concerns that we have about the process.

 

Disclaimer
This article is for general information only and no action should be taken, or refrained from, as a result of this information. Professional advice should be taken based on specific circumstances in each individual case. Whilst we endeavour to ensure that the information contained in this article is correct, no liability will be accepted by KMA Accountancy for damages of any kind arising from the contents of this communication, or for any action or decision taken as a result of using any such information.

 

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