Making Tax Digital:
The end of “binge book-keeping” for businesses?
The annual tax return has been an integral part of British business culture for decades and, for many business owners, it will conjure memories of scrambling for time to meet a hard deadline and endless amounts of form-filling. Despite its drawbacks, annual reporting by pen and paper has become familiar territory for businesses and there was some reluctance when the government first announced the Making Tax Digital initiative, arguably the biggest change in the tax system for a generation and one which would signal the end of annual reporting as we know it.
Making tax digital for business has been delayed
Some businesses will have breathed a sigh of relief at news that the revolution has been held back for Making Tax Digital – although not for long. The April 2018 deadline for digital tax compliance was moved to April 2019 after a government review found the pace of change might just be a little too swift for the business world to adapt fully to online accounting. Businesses and landlords will be now be required to use commercial software to maintain their records and to update HMRC quarterly – but only for VAT from next April if their turnover is above the VAT registration threshold. Then, from April 2020 at the earliest, all other taxes, including income tax and corporation tax, will move over to quarterly digitally reporting, apart from the smallest businesses and some landlords who can adopt Making Tax Digital on a voluntary basis.
Will an online tax account make life harder?
One might wonder if this will simply mean more hassle for business owners if reporting is four times a year. Far from it – the reality will mean businesses will not have to complete four tax returns a year, but they will need to provide more regular financial updates online.
I have been working with SME’s for a number of years and it’s my view that Making Tax Digital should be embraced, as waiting until nearer the deadline to transition could cause a real headache. Digital tax reporting presents an opportunity – and here’s why:
- De-stressing tax
Businesses will submit online accounting data every three months, which means they will no longer have to cram 12 months of work at the end of their financial year. Thereby eliminating the need for ‘binge book-keeping’.
- Close liaison with your accountant
Reporting quarterly may mean working more regularly with an accountant, but will ultimately allow them to better understand the business and how to help it.
- Fewer surprises
Because tax will be calculated quarterly, there is far less chance of a huge unexpected bill building up.
- Real-time reporting
By having an online tax account which they can access at any time, business owners will be able to see what information HMRC holds on them and will be able to see whether their details are correct. HMRC will collect and process tax information in real time to help prevent errors and stop ‘tax due’ or ‘repayments owed’ building up.
Xero online accounting software is recommended
The use of online accounting software to comply with Making Tax Digital for business is not mandatory, but HMRC is encouraging it and I would echo that view. Many Hampshire and Dorset businesses are already using software like Xero for online accounting and, for them, the April start-date next year will be a seamless and straightforward transition. I would recommend Xero to any business – here are just a few of its benefits:
- You will be able to run your business finances anytime, from anywhere, on any device.
- You can automatically calculate the tax you owe, including VAT and payroll tax.
- Pull transaction data directly from your bank or your invoicing software.
- Create digital records of paper receipts simply by photographing them on your mobile phone.
- You will have real-time collaboration with your accountant.
Fundamentally, it’s my view that Making Tax Digital can only be good for businesses in the South and it represents a real opportunity to make more informed business decisions. The potential chaos of the annual tax return and “binge” book-keeping will be now surely be consigned to history. It’s time for us all to embrace a new era for tax reporting – sooner rather than later.
Andrew Kershaw is Associate Director at HWB, based in Southampton, Hampshire, and specialises in tax and online accounting