Making Tax Digital: Bringing business tax into the digital age


At the March 2015 Budget, the government announced they were going to invest £1.3 billion on transforming the tax system with digital technology with plans to end the need for annual tax returns by the end of this parliament in 2020. And, in August 2016, a number of consultation documents have been released giving more detail.

This is the first of our summaries of the 6 key consultation documents.

Making Tax Digital requires most businesses, self-employed individuals and landlords to use digital tools, such as software and apps to keep track of their tax affairs and update HMRC quarterly, or more frequently if required, via their digital tax account.

What is changing?

  • By 2020 most businesses, self-employed individuals and landlords will keep track of their tax affairs digitally and update HMRC at least quarterly, with access to simple, secure and personalised digital tax accounts.
  • There will be flexibility for businesses to record reliefs, allowances and accounting adjustments in regular updates through software and apps, via quarterly updates using cash basis accounting.
  • Businesses will receive nudges and prompts that flag up reliefs or allowances to which they may be entitled, and access inbuilt help to enable them to get things right.
  • Formatting built into the software will do much of the work to provide HMRC with the required information for the quarterly updates so submitting an update will be easy.
  • Businesses will have the option of doing record keeping frequently with their daily work or on the go i.e. through smartphone apps.

Why is it changing?

  • HMRC aim to create a tax system that is more effective, efficient and easier for taxpayers by eliminating the burden of annual tax returns.
  • Making Tax Digital will simplify accounting for more businesses by allowing them to account for tax on a cash in and cash out basis.
  • Regular updates from HMRC will ensure customers have a better experience for the business from the confidence that their tax return is right, allowing them to plan their cash flow more effectively.

Who does it affect?

All businesses, self-employed individuals and landlords (unless expressly exempt), but it focuses primarily on the unincorporated sector.

What is the impact?

  • Changes will apply to business’ income tax and national insurance obligations from April 2018, VAT obligations from April 2019 and Corporation tax obligations from April 2020.
  • Businesses might incur transitional costs moving to the new software and buying apps, but the government insists that there will be free digital tools for the smallest businesses.
  • Many businesses are already using digital tools, but for those businesses who are not already keeping records digitally HMRC will offer free software advice on how to use it.
  • Unincorporated businesses and landlords with an annual income of below £10,000 will be exempt.

Of course, the HMRC documents highlight the benefits. The difficulty for most businesses (and many accountants) is that they’ll have to change their software and processes to comply.

How can we help?

While most accountants have stuck with traditional desktop software, we hopped on to the cloud a few years ago by teaming up with Xero, the world’s leading cloud accounting software. Nearly 2 years ago, we became their first Gold Partner in Merseyside.

So, we know what we’re talking about. We offer Xero to all of our clients. It’s a massive time saver and is compatible with Making Tax Digital.

We also offer Receipt Bank, which allows you to simply take photos of your invoices and they’re automatically uploaded and analysed in Xero. Our clients love the convenience and time it saves.

And, if you don’t want to do it yourself, we can do the bookkeeping once a quarter to keep you compliant. As well as keeping to HMRC’s rules, it gives you much more control of your business as you’re always on top of your numbers.

If you want to avoid getting left behind, want to keep HMRC happy, and want to be more in control of your business, please get in touch.

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Any questions?

If you’d like a meeting or a Skype call with a Liverpool accountant to discuss this, please give us a ring on 0151 380 3800 or drop us an email at [email protected].

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Added by Jon Davies
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