HMRC is getting fancy and is hell-bent on being one of the most digitally advanced tax administrations in the world.
No more tax returns. Less paperwork. No unexpected tax bills. Well, that’s what all the marketing blurb says anyway.
But what’s the ‘real deal’ behind the Governments latest ‘efficiency’ scheme? And how is it set to affect small to medium-sized businesses?
So … HMRC claim: ‘There’ll Be Less Time Wasted’.
No protracted annual return means no chunks of your business calendar dedicated to tax. Instead, with the Making Tax Digital scheme, summaries of income and expenditure will be submitted each quarter.
Hmmm … people who live in the ‘real’ business world know that there is so much more to completing a tax return than making sure their income and expenditure ledgers are up to date.
Even the most meticulous bookkeeper still has to dedicate a reasonable chunk of time and resource to make sure everything is absolutely spot-on with their numbers before they press the ‘submit’ button.
Just cast your mind back to the amount of time it took you to do your last self-assessment. Now times that figure by four and that’s how long this process is likely to take you once Making Tax Digital kicks in – at least in your first year until you get up to speed.
Because submitting once a quarter means going through that whole rigmarole every three months, come rain or shine.
HMRC claim: ‘There’ll Be Less Money Lost’.
It’s estimated that £9bn is lost each year due to human error. The new digital system will drastically reduce this figure, making sure that your tax is calculated right, the first time around. Fewer mistakes, and less unwarranted fines.
Not True! The new system will never truly eradicate human error.
Admin tasks still need to be completed and there’s always the chance that mistakes will be made. The good thing about the new system is that in instances where too little tax has been paid, you’ll be notified sooner and be able to rectify the situation quickly – without having to wait till the end of the financial year.
But if mistakes are made in HMRC’s favour and you end up paying too much tax – how likely do you think it will be that they’ll be hot on the phone to tell you that they’re processing your refund??
The Federation of Small Businesses has stated that they feel the change is likely to triple the administrative burden on small businesses, landlords and the self-employed.
Small businesses ware also likely to need to invest in new hardware to support the system. The FSB suggest that these changes could set small businesses back as much as £3000 a year in additional time, salaries and professional fees alone.
HMRC claim: ‘You’ll Become Less Reliant on Your Accountant’.
Since your ongoing digital accounting records will be compatible with the HMRC systems, there’ll be less for accountants to do.
Wrong. The truth is that you’re going to need your accountant now more than ever – literally!
Strict quarterly reporting rules will mean that contacting your accountant in a blind panic on 1st January will become a thing of the past. Well perhaps not, but you’ll only have the previous three months to worry about!
On top of this, if you’re not already using a cloud-based software such as Xero or Clearbooks, your accountant can make sure that your books and records are properly migrated online, giving you an accurate balance sheet from day 1.
More importantly, they’ll be able to provide more regular advice on the intricacies and complexities of tax rules and regulations.
And to be honest – we couldn’t be happier with all of the above, because we’ll get to know you AND be able to serve you better!
Instead of that one-off annual panic, we’ll remain in regular contact with you. That means more cups of tea, more chats about your financial goals and more guidance on keeping your business profitable.
Initially, the government was aiming to complete the ‘Make Tax Digital’ transformation by 2020, but there has been talk of delays due to Brexit. But one thing is for sure, THIS THING IS HAPPENING!
Starting with businesses that are registered for VAT. With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold you are legally bound to keep records in digital form and file HMRC’s VAT Returns using their Application Programming Interface (API) platform.
And taking everything into consideration, we firmly believe it will be good for your business.
And it’s OUR business to protecting YOUR interests and making sure that YOU keep more of YOUR hard earned money – and not surrender it unnecessarily to the tax-man.