The government drive to make transactions digital is well underway, with the 5 millionth customer signing up to the Personal Tax Account (PTA) last month (September).
Part of the overarching Making Tax Digital campaign, PTA was launched in December 2015 to give customers one point online where they can access all tax information, from income tax estimates to filing self-assessment tax returns, renewing tax credits and checking on the state pension. PTA customers can also receive their income tax refunds directly into the bank rather than via cheques.
When we blogged about Making Tax Digital in February, the government had announced a target of 10 million individuals to have access to a digital tax account by the end of 2016, so whilst this looks unlikely to be achieved, digital tax for individuals is certainly well underway.
In the December 2015 Making Tax Digital roadmap, the timetable was as below 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
- By 2019 for VAT.
- By 2020 for Corporation Tax
- By 2020 more than 50 million individuals and small businesses will have a “secure, personalised digital tax account”.
This roadmap now has a set of six consultation documents to accompany it, with the consultation period open until 7 November 2016:
- Bringing business tax into the digital age
- Simplifying tax for unincorporated businesses
- Simplified Cash Basis for unincorporated property businesses
- Voluntary pay-as-you-go
- Tax administration
- Transforming the tax system through the better use of information
There is even a short video available to show how MTD will work in practice.
The government is saying Making Tax Digital will “help all kinds of businesses end the burden of the annual tax return” and make it “quicker, easier and far better all round”.
There are many professional bodies outlining their concerns about the timelines however, given that HMRC has not yet provided some of the essential elements such as the free software that it has promised, and has not yet completed its consultation.
The next step is for businesses to do their recordkeeping and filing increasingly online.
From April 2018 businesses with a turnover of more than £10,000 will be subject to the MTD requirements. There is discussion about whether businesses just over that threshold, for example with a turnover of £15,000 or £20,000 might be given an additional year to comply.
What are the wider ramifications?
This will have a wider effect on processes and procedures than perhaps initially foreseen.
For example, quarterly filing will require near real-time record-keeping, a drastic move away from the 12 monthly cycle we have been used to.
There will be costs for businesses, such as time training and familiarising staff with the new processes, software expenditure costs (whether buying new software or upgrading existing) and hardware expenditure costs.
There may also be an impact on turnover if resources are diverted to getting to grips with the new system.
Also included in the proposals are a voluntary pay-as-you-go scheme whereby payments can be made throughout the year and these are allocated across a customer’s different tax obligations. But will this be just a stepping stone towards making this a compulsory scheme?
Are there any exemptions?
It’s likely that all unincorporated businesses and landlords with gross income or annual turnover below £10,000 will be exempt from the new obligations.
If people cannot use digital tools for ‘genuine reasons’ then they will not be forced to do so and will be exempt from the new obligations.
What are the positive outcomes?
Once the initial work has been done to get up to speed on digital tax processes, companies will certainly benefit from being in a better position with regards to more timely management reporting and proactive planning from producing real-time tax and accounts information.
What can you do to prepare?
Start working with us to move towards digital recordkeeping, to make the progression smoother and more controlled.
We can set you up to use apps such as ReceiptBank to keep a digital record of business receipts as you go along, and online accounting software such as Xero which can be accessed from any device with an internet connection (you can read more about “accounting in the cloud” in our blog).
Do contact us if you have any queries. Call us on 01761 241 861 or email us today. We will be pleased to advise you. We will be pleased to advise you or to invite you into our offices in Paulton, near Bristol and Bath, for a consultation.