What Is “Making Tax Digital” and How Will It Affect Me?
The UK Government has pledged a digital revolution to HMRC and to trigger fundamental changes to the way in which the UK tax system operates. This is an ambitious agenda which is initially targeting the year of 2020 for full implementation. The aim is to simplify the tax system for tax payers and effectively transform the user experience for millions of taxpayers. A fully digital tax system in 2020 is expected to address the following three aims:
- The removal of form filling and a close connection to real-time information;
- The removal of unnecessary time delays as the tax system operates on a real-time basis;
- Taxpayers will all have access to digital accounts underpinned with automatic upload of information.
This is supposed to mark the end of the tax return for both individuals and businesses. Businesses and individuals are expected to be able to file and update electronic records held with HMRC at any time and in real time. The idea is to collect tax quicker and more efficiently. Rather than receiving an annual tax bill, companies and individuals are likely to need to pay tax on a regular basis just like you would if you are employed under the PAYE tax regime. The more regular updating of your information with HMRC is likely to come at a cost. This is where cheap accountants are a great choice to assist you with this accounting work.
It has been stated that a number of businesses, including the self-employed and property landlords, from April 2018 (so the 2018-19 tax year) will be required to update HMRC at least quarterly. This appears to be quarterly business accounts which will underpin quarterly electronic tax calculations (in lieu of the tax return) with quarterly payments of tax being the likely outcome. All of this is expected to be completed electronically and online. This appears to be very similar to the Payroll Real Time Information and the changes that were brought about to the filing of employer payroll information. I’m there will be a number of online tools that will facilitate these changes and I suspect small business will greatly benefit from recording all business income and expenditure online and then the tax calculations will be lodged each quarter.
Small business owners will need to ensure that all bookkeeping is performed on a regular basis so that quarterly lodgements are not missed. Your accountant is likely to come into play each quarter and may be needed to submit the lodgement to ensure that everything is accurate and correct from a tax point of view. This could lead to the payment of four amounts in accountant fees and small business owners will need to be vigilant when engaging an accountant as these fees could certainly mount up across twelve months.
We are all now familiar with Payroll RTI and the monthly submission of payroll and employee tax data to HMRC, well now is dawn of “Company Tax RTI” and all business owners will be affected by this come 2020.