In 2019, all eligible UK businesses will be compelled to transfer to a digital tax system, where tax is filed online quarterly.
For some businesses, this is a welcome change in step with their own cloud-based approach to accounting and bookkeeping. For others, it’s a step into the unknown.
If you’re not sure where to start when it comes to going digital with your accounts, this post is for you.
What is Making Tax Digital?
HMRC have a plan, that one-day businesses and individuals the length and breadth of the UK will file their tax online. They call this plan Making Tax Digital (MTD) and it’s set to be introduced in 2019.
Under this scheme, both you and your business will have online tax accounts that will automatically track transactions, which are then submitted to HMRC quarterly to estimate your professional and business tax liabilities.
This is part of a government push for transparency when it comes to tax, while also overcoming issues of inaccuracy and inefficiency where paper tax returns are concerned.
‘But I already file online. What’s new?’
Now, for the avoidance of doubt, this isn’t the same as filing your tax return online at the end of the tax year.
Making Tax Digital will be different. Here’s how:
- You will make submissions at least once per quarter.
- You will need to use cloud accounting software that integrates with your digital tax account to file your submissions.
- Your bank transactions and other important financial information will flow automatically into your digital tax account.
Read the HMRC overview of Making Tax Digital here.
Some Important Dates for Your Diary
There’s been some toing and froing where Making Tax Digital is concerned, but on July 13 2017, ministers confirmed a new timetable for its implementation:
- From 2019, only businesses with a turnover above the VAT threshold (currently £85,000)will have to keep digital records, and only for VAT purposes.
- Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.
What Does This Mean for You?
For starters, if don’t already use cloud accounting software, you will need to make the switch in order to digitally record and file your tax returns.
And with the increase in submissions (from once a year to once every quarter) your time spent speaking with your accountant will also increase.
This new reality of online accounting and a closer relationship with your accountant should represent two big positives for your business. First, you’ll be able to access your financial information in real-time, meaning important decisions can be taken quicker, and with more confidence. And second, your accountant will be better placed to advise you as they’ll be able to review accurate and up-to-date numbers.
What’s more, the increase in submissions ought to make tax more manageable. When it’s calculated quarterly, you can plan for it and take steps to minimise your liabilities. But when a big bill lands at the end of the year? That can come as something of a shock.
Putting a Plan in Action
In light of this impending change, we wanted to share four simple steps to help you prepare for Making Tax Digital. Follow these closely and when it’s finally rolled out, you’ll hardly miss a beat:
1. Discuss with your accountant
Even if 2019 feels like it’s an age away, it’ll be upon us before we know it. It’s therefore never too early to find some time to sit down with your accountant and discuss the ins and outs of Making Tax Digital.
2.Review your existing bookkeeping methods
During that discussion with your accountant, make sure you both review your existing bookkeeping methods and pinpoint the necessary changes required to bring your business in line with Making Tax Digital. If you’re still relying on an Excel spreadsheet or a desktop accounting system, now’s the time to make a change.
3. Embrace the cloud
Adopting any new piece of technology can be challenging, but the benefits of cloud accounting far outweigh the negatives, of which there are very few.
Just think, what would you rather be the case when Making Tax Digital finally rolls out? That you’ve been using cloud accounting software for more than a year? Or that you’re scrambling at the last minute to comply with this new scheme?
4. Identify milestones and stay on schedule
Finally, every effective plan requires milestones. Work with your accountant to determine which fit best with your business circumstances so that you and your staff are trained and comfortable with the cloud.
Start Planning Now with Ten Forward
You know that old saying, “a year from now, you’ll wish you started today”? Need we say more?
Going digital with your accounts doesn’t have to be challenging. Our friendly and experienced team of advisors are ready to help you make the switch.