The nightmare of annual tax returns will soon be a thing of the past, due to a new government initiative called ‘Making Tax Digital.’
This reform is currently still under development and is a complete overhaul of the previous, somewhat archaic system. The objective of HMRC is to become one of the leading digital tax administrations worldwide, and customers will also reap the rewards of this new user-friendly and completely modernised service. Ultimately, digital tax returns will be implemented across the board, for sole traders, SMEs and limited companies alike.
How Will This Work?
Currently every individual and business can access their own digital tax account, and the system is continually being honed and expanded to make it accessible and adaptable. However, even though it is widely considered a very progressive move, due to concerns about the speed of implementing such radical changes, the government have now scaled back the operation allowing more time for compliance with the new regulations. Even greater flexibility is offered to sole traders and small businesses, who will have increased time to adopt the new system.
• Digitised background information: this means that HMRC will retain key details of individuals and businesses, preventing the need for constant replication of information every time a tax return is made and leading to more efficient use of data.
• Tax online: instead of waiting until the end of the year to find out how much tax is owed, businesses and sole traders will be able to see this accumulating incrementally as part of the new system. As the information will be updated as much as possible, it will be a good indication of the final tax bill that will be incurred.
• Comprehensive financial records: customers will be able to get an overview of their entitlements and liabilities in just one place. Previously disparate records will be consolidated, giving an overall picture for the customer’s ease of reference.
• Digital communication and interaction: this will enable customers to contact HMRC more readily using various media such as messaging and Secure Chat as well as receiving alerts, information and advice.
• Access to digitised tax information from a range of devices: including mobiles, tablets and computers.
For businesses, use of the system will not be enforced until April 2019 and even then this will initially just be for VAT returns. However, this will only apply to those operations with large turnovers and not to small businesses and sole traders, who will be able to use the system also, but only if they wish to. Importantly, it will not be a mandatory requirement for these smaller operators until later down the line.
A wealth of information will be available to limited companies, SMEs and sole traders in the next few years, to enable a good run-in period and so that the new reforms can be adopted systematically and effectively. If you require anymore information on this matter do not hesitate to get in touch with Peach Wilkinson Accountants, our team will be more than happy to advise you of the best steps for your business.