Getting your business ready for digital tax accounts
28th February 2017
The way that many businesses record, manage and report their finances to HMRC is about to undergo a fundamental shift.
Like auto-enrolment before it, many SMEs are looking at making tax digital (MTD) with anxious anticipation. And while many found that the auto-enrolment process was not as difficult and disruptive as first thought, there is still some uncertainty as to what MTD entails.
So what does MTD mean for your business?
The MTD process
The essential fact of MTD is that businesses will have to transition to a digital tax account by 2020. The exact timeframe for the switch depends on the kinds of tax you report and pay:
- April 2018 for income tax and class 4 national insurance contributions
- April 2019 for VAT
- April 2020 for corporation tax.
Once a business has transitioned over to a digital tax account, they will need to:
- keep their tax records electronically using software
- provide a quarterly summary of tax data to HMRC using this software (for VAT this will replace the VAT return)
- provide a finalised end of year position to HMRC including reliefs and allowances (10 months after the 4th quarter of the previous year).
There is a complete exemption for incorporated businesses with annual income or gross income of below £10,000. Businesses that are also completely unable to access the internet will be exempt.
While the legislation that will govern the complete ins and out of the MTD process will be revealed as part of Finance Bill 2017, the recent publication of a consultation response documents sheds more light.
Among the details confirmed are:
- the use of spreadsheets will be permitted for recording and submitting receipts and expenditure
- there will be an extension of accounting income and expenditure on a ‘cash in, cash out basis’
- charities will be exempt from quarterly reporting.
12 month rollout
Businesses will be given a minimum period of 12 months before they are charged any late submission penalties when they first adopt the new system. This is to help ease the transition.
There will also be a full 12 month pilot with selected businesses beginning in April 2017, so there may be changes to the process along the line.
The need for software
For many businesses the requirement to record and submit their finances electronically will represent a significant change to their organisational processes.
Many small businesses do not currently record their details electronically. A March 2016 survey by the ICAEW found that 75% of respondent businesses did not use accounting software or maintain their accounts electronically.
The government is currently considering the kinds of support that it can offer businesses that may have trouble adopting the required technological direction. Options being considered are financial support, tax relief and online training sessions.
We can help you make the transition
MTD is going to be a big change for some businesses, but it does not have to be painful one. With the right preparation and an understanding of what is required of businesses, the move shouldn’t be too disruptive to an organisation’s operations.
For more guidance and technical advice, contact us today and speak to a member of our team.