Submitted by Sestini & Co
| on Fri, 02/05/2016 - 12:11 | In Accounting and systems
, digital tax
The March 2015 budget saw the Chancellor, George Osborne, announce “We will abolish the annual tax return altogether. Millions of individuals will have the information the Revenue needs automatically uploaded into new digital tax accounts.”
He added, “Businesses will feel like they are paying a simple, single business tax – and […] for most, the information needed will be automatically received.”
So what does this mean in practical terms?
Well, in the Autumn Statement he expanded a little: “We’re going to build one of the most digitally advanced tax administrations in the world. So that every individual and every small business will have their own digital tax account by the end of the decade, in order to manage their tax online.”
In December 2015 the plans were further explained in “Making Tax Digital” [Hotlink updated in 2019]:
- This year (2016) the plan is for 5 million small businesses and the first 10 million individuals to have access to a “secure, personalised digital tax account”.
There’s a plan in place ’til 2020 for most businesses, including the self-employed and landlords, to update HMRC quarterly through their accounting software:
- By 2018 for income tax and National Insurance contributions.
- By 2019 for VAT.
- By 2020 for Corporation Tax obligations.
- By 2020 more than 50 million individuals and small businesses will have a “secure, personalised digital tax account”.
What are the implications?
Although the initial impression might be that ‘everything will happen automatically online’ under the new system, that’s far from the truth: advice from accountants is going to remain essential to small (and large) businesses, as well as individuals with more complex tax affairs, such as landlords or ex pats.
The onus will be on businesses and landlords to check the information the Government pulls in from various sources to calculate tax and other obligations.
Input from accountancy experts will be an invaluable part of this process, in particular for those whose affairs go beyond that which is automatically collated. As your agent, we’ll be able to view your digital tax affairs and to provide support and guidance; quarterly automatic filing means it is even more important to review planning opportunities in a timely manner in order to make the most of reliefs available.
Why isn’t everyone enthused about the changes?
The plans for digital taxation aren’t being welcomed by all: a petition signed by over 110,000 people urged the Government to “scrap plans forcing self employed & small business to do 4 tax returns yearly”. Reaching 100,000 signatures triggered an automatic debate in the House of Commons, which took place on 26th January.
The Government responded: “Making Tax Digital will not mean ‘four tax returns a year’. Quarterly updates will largely be a matter of checking data generated from record keeping software or apps and clicking ‘send’.”
They added, “Quarterly updates will not involve all the complexity of a full tax return. The updates will be generated from existing digital business records. In most cases, little or no further entry of information will be needed. It will be much quicker to complete than the current tax return.”
How can we help?
At Sestini & Co we offer a bespoke service, so whilst the mechanism for sending information to HMRC may change over time, our staff will continue to offer expert advice as our clients expand their businesses, take on new staff or as individuals consider their retirement or property portfolios.
We’re also sure that the accounting system you choose will be a critical part of how easy it is for you to move to digital accounting – and that was reinforced by the Government response to the petition, where they said, “The reforms will rely on businesses, self-employed people and landlords using software or apps that can connect securely to their digital tax account.”
Our system of choice, Xero, is working closely with the Government as the digital transformation strategy progresses, and its annual conference (February 9-10th) includes amongst its speakers Brigid McBridge, the API and third-party software lead at HMRC. You can read more about Xero in our blog on cloud-based accounting systems.
Sestini & Co will continue to scan the technology arena to ensure we’re recommending the market leading software for accountancy and associated areas and to ensure that all our staff are abreast of the latest tax and business legislation and can advise clients on the implications for their organisations or personal affairs.
If you’d like to check the impact of the changes on your business or personal finances, call us on 01761 241 861 or email us today. We will be pleased to advise you or to invite you into our offices in Paulton, near Bristol and Bath, for a consultation.