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Making Tax Digital

HMRC’s initiative titled “Making Tax Digital” means that most businesses and landlords will be required to submit a quarterly tax return together with their usual annual tax return. Here is a headline guide to the proposals;

Who is affected?

Every business, landlord and small company with income over £10,000 will be caught under these new rules, but the dates are staggered according to the size of your business activities, as follows:

  • Businesses and landlords who aren’t VAT registered will have to submit quarterly tax returns from April 2018
  • Businesses and landlords who are VAT registered will need to submit quarterly tax returns from April 2019
  • Small companies (micro entities) will need to submit quarterly tax returns from April 2020.

What needs to be submitted to HMRC?

A simplified tax return will need to be submitted every three months to HMRC, together with an annual declaration. For smaller businesses this can be prepared on a cash basis, which simplifies this process.

What can I do to prepare for this?

The first big challenge for many businesses, especially those that aren’t VAT registered, is going to be keeping their records up to date every three months rather than doing this once per year. There have been significant advances in book keeping software over the past five years and these can help with this administrative burden.

Cloud based packages such as Kashflow, Xero, Sage One etc will extract your bank statements directly from your bank to save you recording every payment and receipt. It will even allocate transactions automatically based on the rules you set. Another advantage of cloud based systems is the ability to allow your accountant to login and make changes, rather than sending backups via email. Having up to date information and making book keeping as quick as possible is going to be essential to meet the increased number of HMRC deadlines.

The second challenge is whether your accountant is prepared for this – this is a massive change for the accounting profession and its impact can’t be underestimated:

What about tax payments?

HMRC are not currently proposing to ask for tax to be paid quarterly. However, it will be possible to make voluntary payments based on your quarterly tax submissions.

However it would seem likely that this will change in the future and quarterly tax payments will be based on your quarterly tax submissions. This will increase the importance of accurate submissions and may lead to cash flow difficulties for seasonal businesses.

If you have any queries with any of the above or want to know how Ribchesters can help your business please do get in touch.

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