One of HMRC’s biggest changes in many years is just around the corner. The Making Tax Digital scheme does what it says on the tin, and will be making digital records a mandatory process for businesses and their respective accountants to provide. The roll-out begins in April 2019 for VAT-registered businesses. If you are one of our clients, we’ll help make sure you’re on top of things. If not, the following article should help inform you, so no need to panic.
Here’s the key thing: don’t worry! Making Tax Digital will not only put an end to numerous problems that the current tax system has, but it’ll actually provide opportunities for many businesses to grow. HMRC said that this initiative will ‘make it easier for individuals and businesses to get tax right and keep on top of their affairs’ and we agree with them.
What will change with Making Tax Digital?
First let’s talk practical steps: how will doing your accounts change?
For VAT-registered businesses…
Honestly, for many of you, it won’t all that much. If you’re VAT-registered, Making Tax Digital will kick in from April 2019. You will need to provide returns on a quarterly basis (four times a year), but other than that it won’t feel like much of an upheaval. This is because HMRC is already working with most accounting software suppliers to ensure they’ll be rolling out Making Tax Digital updates in the near future. Over 150 software companies are working with HMRC to be Making Tax Digital compliant, and 40 will be ready by April 2019.
If you’re using software like Xero or FreeAgent, submitting records will be just as easy as ever, if not easier. In addition, it won’t cost a penny more than you’re already paying to use your software. It’s basically business as usual. There’ll be no need to use an HMRC gateway website or manually enter records – the software will send them off digitally.
For non-VAT registered businesses…
For businesses under the VAT-threshold (£85,000 per annum), Making Tax Digital changes won’t impact you until at least April 2020. For you guys, we recommend getting to grips with some online accounting software so that you have plenty of time to implement it into your business before Making Tax Digital changes become mandatory.
Again, don’t worry: once you’ve learnt to use the software then it will actually make your accounting life easier. No more ‘shoeboxes of shame’ packed with receipts, and messy spreadsheets that are updated when you get spare time… just a simple and streamlined online software that you can update on the fly (as your records will be cloud-based) and is ready to be sent off to HMRC during every reporting period.
Are there any exemptions?
It’s important to note that only a tiny proportion of businesses will be exempt from this process once it is completely rolled out. At the moment, it’s understood that it’ll be those earning under £10,000.
To businesses who fit within this category, we do urge you to think about two things:
1) will your business remain in this category? For most growing and developing businesses, the answer is likely to be ‘no’ and by the time April 2020 rolls around businesses between £10,000 and £85,000 will be impacted by Making Tax Digital regulations.
2) there are no guarantees that the regulations will remain this way – it’s a very real possibility that even businesses under the £10,000 threshold will need to adhere to Making Tax Digital rules soon enough.
Phew… so, this doesn’t sound so bad?
Right! Not only is it not bad, it’s actually good. When the Making Tax Digital roll out is complete, we can expect greater efficiency and effectiveness for the main parties involved in financial reporting: your business, your accountant and HMRC.
First up, automation is going to smooth out the process of providing financial records and bookkeeping. You can update your records dynamically and easily with cloud accounting software, most of which even provide smartphone apps allowing you to grab a quick photo of a receipt and amend records whenever, wherever. Those records will be sent straight to HMRC as and when they’re required – no hassle, no fuss.
Secondly, the cloud-based element of accounting software means that everyone has access to the finances at anytime. If you’re a bigger business with multiple employees, that means anyone can update the company records and see where things stand at any time. No more tracking down Angela in finance with questions, and no need for Angela to have to log all of your petty cash receipts! For small businesses and sole traders, entries and records can be checked by your accountancy firm within seconds of being uploaded.
Thirdly, we accountants will be able to do a better job! As accountants, a staggering amount of time is dealt dealing with record-keeping, filing tax returns, completing manual data entry of records etc. The Making Tax Digital regulations will simplify a lot of that process for us, meaning that we can put more focus into extra services as an industry. We know many businesses see accountants as a necessary but regrettable outlay, but Making Tax Digital will simplify bookkeeping into the future, and we expect to be able to offer more support and advisory help. This could include building a better understanding of your business’ market sector and the financial opportunities available. We also expect to be able to dedicate more time to management accounting, providing advisory reports and support with decision-making.
Get a headstart on digital tax
As suggested, if you’re not currently using any digital accounting software, now is the time to get looking. It’ll make things easier when the Making Tax Digital deadlines roll around, but you’ll also start reaping the benefits provided by your software.
Most software has additional features to help make business operations easier and provide analysis for decision-making. Our software-of-choice, FreeAgent, has features for businesses big and small, from time-tracking features and timesheets for freelancers to performance reports, cash flow, snapshots of your current finances, and projected future finances that prove vital for decision making in businesses of all sizes.
Give us a call at Ozkan and we’d be happy to give you the whistle stop tour of FreeAgent and answer further questions about how Making Tax Digital will affect your business. We’ve been using FreeAgent and Xero for the last 7 years, so most of our clients have been digital for some time. If you’re not digital yet, don’t panic – we give all of our new clients free FreeAgent training to ensure you’re up to speed.