By now, most businesses are aware that the “Making Tax Digital (MTDfB)” legislation was dropped from the Finance Bill in April 2017, ahead of its debate in the House of Commons. However, don’t think it won’t make a reappearance.
The Government wants the new digital tax system to be fully realised and in place by 2020. As its name suggests, it’s a digital system for accounting, with a free software that will be available to small firms.
Digital submissions of tax returns and other statements have been in place for sometime and so the is a natural next step. The idea, believe it or not, is to simplify things and reduce the risk of ‘nasty surprises’ at the end of the tax year when accumulated owed tax can sometimes catch small business owners out, especially if they have no tax planning to prepare them.
Yes, you can still use spreadsheets to record your business transactions and to reconcile your transactions and record your taxes, so do not worry as these will be linked to the available software. However, there’s a better way of managing your business’s financial affairs, and you can definite use this legislative as an opportunity to do so.
Who does it affect?
Essentially, everyone, but initially the smallest businesses typically landlords earning over £10,000 per annum, self-employed people and businesses. This is interesting because the government is targeting the large numbers of home owners who opted to become landlords through the buy-to-rent schemes, and of course those smaller ‘self employed’ businesses, similarly being targeted by changes in the IR35 rules. Slowly but surely, HMRC is closing the loopholes.
As it stands, small businesses have to report to HMRC once a year. It isn’t a trivial process for small business owners to fill it out and send it in and is fraught with the potential for error and loss. This new law means that small businesses will have to report to HMRC every quarter. This has the potential to increase the workload for them, making running their business – usually by themselves, even harder.
Are there any exceptions to this law?
There seem to be only two solid exceptions to the MTDfB and those are:
- If you are unable to do so by being somewhere without access to internet.
- If you are unable to go digital, you may stick to using the current method of spreadsheets and reporting, and sending them to HMRC.
Take the opportunity to upgrade your business
We mentioned earlier a better way to manage your business finances and transactions. Digital is a way of life for businesses today, even if you haven’t made the change from manual spreadsheets, your clients and suppliers likely have. So why not upgrade your own business and make it easier on your self? Cloud (internet) based accounting software is widely available and easy to set-up and use. In many instances, the companies providing them have support to assist you all the way through. If you already have an accountant who prepares your year-end returns, they will most likely be a partner with one of the cloud based software providers, such as Xero.
Once you make the change, you’ll wonder why you’ve sat back for so long. It makes it easy to update and reconcile all your transactions, it also links to your various bank accounts and does your VAT and year-end tax. Soon, Xero will assist you in preparing the quarterly returns and year-end reconciliation required under the MTDfB scheme. We believe that rather than increase your tax preparation costs, it could actually reduce your overall accounting costs, but more importantly, give you greater control and visibility over your business, saving you time and money, allowing you to focus on what’s important and avoiding nasty surprises caused by errors, oversights and lack of planning.
Talk to the small business accounting experts
The team at Tax Agility knows that “Making Tax Digital for Business” will have a major impact on you as running a business requires a lot of focus. Particularly, small business owners who don’t have a team of finance or bookkeeping experts behind you to do these forms for you. Our advice is to make sure you seriously consider ‘biting the bullet’ and going digital through a solution like Xero. It’s cheaper than you may think and we will provide your first month for free.
For more information and advice on the coming tax legislation or Xero, feel free to contact us on 020 8780 2349 or complete our enquiry form.