Individuals, partnerships, sole traders, and landlords are soon to join HMRC’s new digital world in 2018.
Making tax digital will revolutionise the way many businesses keep their books. HMRC hope that by 2020 the tax return as we know it will have been entirely abolished.
Individuals and small businesses will have access to digital tax accounts, with the information HMRC needs already automatically uploaded. HMRC believe that you should never have to tell them of information they already have and therefore under and over payments should be reduced. Digital accounts will give you a single, personalised view of your tax position across all liabilities and entitlements.
From April 2018, all but the very smallest of unincorporated businesses and landlords (turnover less than £10,000) will be required by law to keep their records on accounts software. Many people already do that – but there will be an additional requirement in that, the software must be capable of sending information to HMRC every three months. Currently there is no software on the market capable of doing that, but we know that the major software companies such as Sage are working on it.
HMRC are calling this “Making Tax Digital”. The idea is that everyone will use compatible software, to record all their business transactions. Every three months, the software will send the data to HMRC. These 3 monthly uploads will not be accounts and will not include such things as stock valuations or tax adjustments. HMRC are therefore proposing that businesses and landlords will have nine months after their last quarter to make any tax and accounting adjustments required to calculate their tax payable.
Whilst information will be submitted quarterly to HMRC there is no intention at present to make the payment of tax quarterly. The payments date of 31st January, and 31st July (if payments on account are required) will remain. Taxpayers can, if they choose, pay on a voluntary pay as you go basis. HMRC are currently looking at various incentives to encourage PAYG payments of tax.
Making tax digital will be a huge change for all taxpayers, but particularly so for those who have always kept their records manually (or on computer spreadsheets), and give their records to their accountant once a year. After April 2018, everyone will be required to use accounting software of some sort, and keep records in real time. Many businesses are doing this already, using cloud based systems which also offer the advantage of allowing the accountant to ‘log in’ to review how things are going through the year. HMRC have also promised that free software will be available for smaller businesses.
This is a massive project for HMRC. There are lots of questions to be answered and details to be ironed out. There have been suggestions that the April 2018 start date will be put back a year. However these changes are coming, so do watch this space for further information and feel free to speak to us about the implications.