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The advent of digital media has brought challenges and opportunity in equal measure. As we continue to make technological advancements, the way we conduct business must develop accordingly. The Office for National Statistics reported that 83% of British businesses had internet access and an online presence.
However, it appears that HM Revenue & Customs has left a lot to be desired when it comes to digital business management with a system of taxation described by many business owners as ‘outdated’.
Moreover, the amount of uncollected tax has risen due to taxpayer error as well as flawed protocol. The figure of tax not collected is now in excess of £8bn per year which costs Britain’s public and its businesses respectively.
Why Make Tax Digital?
In a bid to make the process of paying taxes more accessible and efficient the Government announced their ‘Making Tax Digital’ initiative as part of their 2015 Autumn Statement.
This announcement also outlined their plans to ‘transform’ the tax system and scrap tax returns by 2020.
Although unprecedented in the UK, digital tax systems have been already been effectively implemented in countries such as Australia, Brazil and Estonia.
There are plenty of benefits to digital record-keeping, for instance taxpayers using an online tax account are able to get a clearer picture of their tax affairs in real time. Digital tax management also reduces hassle, making it possible for anybody with internet access to remotely monitor their taxes. The web based service allows business owners to budget more accurately and save time by placing all of their taxes in one place.
Financial Secretary to the Treasury, David Gauke later highlighted more benefits of a digital switchover, adding that introducing digital record keeping and quarterly updates for businesses will eradicate around 10% of taxpayer error.
How are they Making Tax Digital?
MTD is set to be introduced in phases, giving all business owners and landlords at least two years to make the adjustments required to manage their taxes using the new digital service.
The proposed changes are due to take action for VAT purposes from 2019 onwards.
Who is Affected?
Businesses must make an annual turnover that exceeds the VAT threshold, currently set at £85,000 to qualify for digital VAT record keeping. This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to make the switch to the new digital system.
As VAT already requires a quarterly update, this won’t be a major adjustment and taxpayers will not need to report to HMRC more frequently than they already do.
‘Smaller’ businesses turning over £10,000 or less will be exempt from the change in legislation, but will be allowed to submit reports and quarterly updates on a voluntary basis.
There are proposed changes to the submission of Corporation Tax however, exact details and dates are yet to be confirmed at this stage. Most British businesses will be required to keep digital records and update HMRC on their income and expenditure every quarter.
What are the benefits?
The implications of a fully digitised tax system are that businesses have more flexible basis periods. This means that traders more suited to shorter accounting periods can submit quarterly reports to HMRC, rather than reporting annually.
Need Help Making Tax Digital
If you need help with Make Tax Digital then talk to us. Our accountants in London, Northampton, Rugby and Daventry are experienced in small business tax and accounting and can help you effectively manage changes in processes and legislation which affects you.