With the upcoming digital tax makeover soon to be upon us, business owners across the UK should be aware of their new responsibilities when dealing with HMRC. The system is currently being phased in and set for universal coverage by 2020.
Making Tax Digital
Back in 2015, the government announced plans to revitalise the way we pay tax, effectively doing away with the traditional annual tax return.
The changes are designed to make life easier for both calculating how much tax is owed and making payments on time.
All of your tax details will be displayed in a single online account, similar to how your online bank account may look, making it easier to register, update and pay your tax at will.
Because you can update your online tax account in real-time, there’s no need to complete the dreaded tax return annually. You can simply log on throughout the year and assess your current tax situation whenever necessary.
However, from April 2018 quarterly returns will have to be made four times per year under the new digital system – a move that some businesses are unhappy with, especially SME’s, due to the supposed increased workload.
The government have been quick to relieve these fears, showcasing how the digital system will actually make things easier for small business owners. In addition, millions of people won’t have to complete a tax return at all, simply linking accounting software with their tax account for automatic updates.
How Will my Business be Affected?
The changes will affect all companies across the UK, from sole traders to large PLC’s, no matter their current tax requirements.
Although a wholesale change may seem like a big upheaval for your company, there will actually be less tedious paperwork to complete. Everything will be stored onto your online account, showing real-time and up-to-date calculations whenever you log in.
In its current guise, you may have to keep informing the HMRC of information it already knows. There will be no need for this with the digital makeover, with a simple interface showing how much tax is owed throughout the year. This will help business owners plan ahead with more confidence.
With the often complicated Self-Assessment returns not required once a year, your business can also make tax payments as and when it suits you. This will help manage your cash flow throughout the year instead of being left with one large lump sum.
The digital makeover will reduce the possibility of making mistakes when sending information to the HMRC – potentially incurring costly fines and penalties whilst doing so. Once logged in, the digital system will inform of upcoming deadlines and provide access to support mechanisms such as virtual assistants and web-chat functions.
It’s recommended to discuss the new digital changes with your accountant if unsure of how the process will affect your business in full. You can also grant them access to your online account, allowing them to oversee and arrange your tax affairs whilst you concentrate on growing the business.
If you’d like to learn more about the HMRC and running your business, you might be interested in Learning More About HMRC’s Penalties for Businesses.