10 Things to know: Making Tax Digital For Businesses
The Government has announced plans to ‘Make tax digital’. But, what is it, when is it being introduced and what could it mean for you?
1. The deadline is approaching
By 2020, most businesses and self-employed people will have to use digital tools (ie software and apps) to “keep track of their tax affairs” and update HMRC quarterly, via a digital tax account.
2. Simpler tax returns
Making Tax Digital for companies and individuals is key to government plans to make it easier for people and businesses to “get their tax right and keep on top of their affairs”.
3. End of the annual return
The changes will bring about “the end of the annual tax return for millions”. Self-employed people will no longer need to complete a self-assessment tax return each year.
4. Online tax account
It won’t affect everyone. But, come 2020, small firms and self-employed people earning more than £10,000 a year will have to update their tax affairs at least quarterly through an online account.
5. Real-time tax
The Government believes that people and businesses should not have to wait until the end of the year to find out how much tax they owe. HMRC plans to collect and process information in “as near to real time as possible”, to “help prevent errors and stop tax due or repayments owed building up.”
6. Phased implementation
Changes will be introduced gradually, starting in April 2018 with Income Tax for VAT registered businesses in April 2018, moving on to VAT in April 2019 and then finally corporation tax in April 2020.
7. Bookkeeping software
Many businesses (or their accountants) will need to use compatible bookkeeping software to be able to report financial data (ie details of their income and expenditure) to HMRC.
8. Exemptions will continue
According to HMRC: “There is no question of forcing those who cannot go digital to do so. HMRC will ensure that there are alternatives for those who genuinely need them.”
9. Quarterly checks
HMRC has dispelled the “myth” that businesses will have to do four tax returns a year. It explains: “Instead of one big, onerous tax return each year, once a quarter businesses can check that the information they are collecting digitally is correct, and simply click ‘send’ to update HMRC.”
10. Free software and advice from HMRC
Businesses won’t have to keep any extra records, says HMRC, and if your business isn’t already keeping records digitally, HMRC says it will make available free software, together with “clear, simple advice on how it can be used”.
- HMRC has published case studies illustrating how Making Tax Digital will apply in practice and how it could benefit small businesses and the self-employed.