Making Tax Digital, are businesses ready? What you need to know!

Making Tax Digital

Making Tax Digital

Making Tax Digital’ has set a pretty bold precedent for the future of business taxation.

The government initiative has got businesses up and down the country scratching their heads as to when and how to start adhering to the seemingly slow roll out. They have stated that the new digital restructuring will ‘make it easier for individuals and businesses to get tax right and keep on top of their affairs – meaning the end of the tax return for millions’.

The main aims are to, hopefully, make paying the right amount of tax easier and more efficient for taxpayers but there are noises being made to the effect that the roll out is unclear and at times downright confusing to follow. Also, many companies that have an efficient in-house structure in place are wondering if it will improve their situation or cause more confusion than it should supposedly clear up.

HMRC has already issued consultation documents that described what they are planning to do and have asked for feedback from businesses. It has also released a number of answers to the numerous responses they received. It still seems like there may be further changes ahead but, I guess the key question is…

Is your business ready for the ‘Making Tax Digital’ initiative?

In order to be able to answer this question confidently, we need to look at what it entails, when it will come into full effect and how it will affect your size of business. So what is changing? In short, the current summary of changes looks like this;

  • Businesses with an annual turnover under £10,000 will be exempt, for now.
  • Summaries of your businesses income and expenditure will need to be submitted at least four times a year.
  • More taxpayers than ever will be able to use the cash basis of accounting.

When do I have to act? Well, the short answer is, now!

Making Tax Digital had initially been introduced, or at least the idea of being aware of it, in early 2016. As of 2020 the aim is to have completed the full roll out. Trying to stay ahead of the curve on this is advised. It doesn’t look like something that will go away, despite some anticipated changes.

The key milestones to be aware of, especially the ones already reached, are listed here;

  • April 2017 – Smaller pilot of the scheme is rolled-out.
  • July – December 2017 – Digital tax accounts enable taxpayers to see an overview of their liabilities in one place and HMRC begins a private pilot of Making Tax Digital for VAT.
  • Spring 2018 – Live pilot of Making Tax Digital for VAT begins.
  • April 2019 – Businesses with a turnover above the VAT threshold are required to keep digital records and submit quarterly returns for VAT purposes only through their accounting software. Businesses are able to voluntarily keep digital records for ‘other taxes’.
  • April 2020 – HMRC looks to widen the scope of Making Tax Digital.

Are you prepared?

Despite the initiative seemingly being something most businesses are now aware of, a survey conducted by the UK200Group has indicated that a huge number of small businesses aren’t prepared for the full introduction of the Making Tax Digital (MTD) initiative.

  • The UK200Group found that 65% of businesses currently don’t take advantage of a digital accounting software service. This doesn’t bode well for the smooth introduction the government is hoping for.
  • It also found that 22% of small businesses prefer to do their bookkeeping and record keeping manually.
  • 27% only utilise the most basic of ‘out of the box’ computer programmes such as Microsoft Excel and Google Sheets to house all of their bookkeeping information, compiling them in simple spreadsheets.

An ongoing issue that we can see here is with people sticking with outdated versions, causing chaos when trying to sync with other digital accountancy software. With the disastrous roll out of Microsoft Windows 8, and to a lesser extent Windows 10, we can see why many firms have stuck with the seemingly more stable older versions.

This in itself raises issues regarding the security of using such outdated yet apparently stable software versions. Only recently the NHS and a handful of London Airports (and many more institutions around the world) had their systems compromised and held to ransom because simple software upgrades and patches were overlooked.

The UK200Group is also quoted as saying that these businesses will be expected to;

adopt a full accounting package to make them compatible with the Revenue’s plans.

The Chair of the Digitalisation Taskforce at the UK200Group, Richard McNeilly, also said that;

Making Tax Digital represents the single most significant change to the UK’s system of taxation in recent times, and many of our smaller business clients are simply not ready for it. If the Revenue stays committed to having businesses report and pay tax digitally by 2018, small firms have only a short time to update their systems.

Don’t shy away from it

As we’ve mentioned previously, this is not something that you should be shying away from until the last minute. The changes expected of your business may be minor if you’re already utilising accountancy software, or quite large if you’re still using manual hand written bookkeeping tactics. The bottom line is, we will all have to follow suit, and, it should be said, to our collective benefit.

If you’re concerned that you are not geared up for change then you can contact us to answer any questions you may have. We can guide you through everything you need to know about MTD and advise you on how best to make the transition to the new digital platform. Ultimately, once you are adhering to the MTD initiative, the financial side of your business life should be a lot more straight forward, and who doesn’t want that?

To learn more about Making Tax Digital, please visit the following URL on teh official website.

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