Making Tax Digital

Making Tax Digital

14 March 2017

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Last week’s Spring Budget announced several changes to the taxation system that will directly affect businesses and the self-employed.

There was also the crucial plan for Making Tax Digital – the much anticipated HMRC scheme designed to reduce human error and make processes much more user friendly.

Making Tax Digital was previously announced as part of the Spring 2015 budget and intends to transfer tax records to digital software and update HMRC quarterly, rather than once a year.

Whilst there are fears that less of a service is being provided – i.e. no actual human being to guide you through your tax return – the focus seems largely to be on reducing any errors. With an £8 billion tax gap currently haunting HMRC, you can perhaps see why the digital scheme has been pushed through.

It could be argued that, since millions of businesses already bank, pay bills and shop online, integrating tax with the day-to-day running of a business is the natural next stage in the process.

The Chancellor, Phillip Hammond, has assured small business and landlords who fall under the VAT threshold that they will have an extra year to prepare for digital migration.

HMRC estimates that there will be an initial implementation cost of £280 (on average) for the first year, but a small saving thereafter.

Free software will be made available for businesses that have a turnover below the VAT threshold, have no employees or use the cash basis.

Unincorporated businesses that have an annual turnover below the VAT registration threshold of £83,000 will also have until April 2019 to prepare before Making Tax Digital becomes mandatory.

The government is also seeking to try and simplify the system for taxpayers, including interest and penalties. The key will be enabling small businesses to effectively utilise digital tax software and record keeping.

HMRC have predicted that 10% of the aforementioned missing £8 billion is due to errors that will be reduced under the Making Tax Digital scheme, therefore enabling the department to recoup approximately £800 million in lost taxation.

The non-ministerial body issued a press release, saying: “The digital tax revolution moves a step closer. Following extensive consultation, with more than 3,000 responses over the last eight months, HMRC has issued in-depth details on how digitising the tax system through its flagship Making Tax Digital project will help millions of businesses to get their tax bills right first time, without the need for an annual tax return.”

Making Tax Digital will allow PAYE RTI to be linked to the Income Tax System – meaning that companies will be able to log on and see exactly how much tax they have paid to date in real time.

Both the government and HMRC are hopeful that this move towards digital will streamline existing services and speed up the process of tax returns. It is further hoped that the system will not lead to any redundancies within the Accountancy and Finance sector – rather that current employees will simply need to readjust their skillsets.

Cloud Accountancy software and roles are already well-established in businesses, making this government edict more of a small step than a giant leap.

If you are looking for Cloud proficient accountants to add to your firm, contact Fiona Ashcroft in our Accountancy and Finance team by clicking here. 

 

Written By Fiona Ashcroft

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