In 2018 UK businesses were busy ensuring they were GDPR Compliant, but what changes are coming in 2019. Welcome to Making Tax Digital, new Tax rules enforced by HMRC starting in April 2019.
It may not sound the most exciting of rules but it’s very relevant for you and your business. So what do these new rules mean and how can you ensure that your business will be ready in time? In this blog we are looking at everything you need to know about how to take your accounting obligations digital.
We will look at the reasons behind the change, who is affected and what will no longer be supported. Plus we will examine the impact on small businesses and how you can eliminate problems by acting quickly and getting the right advice.
Like many big operations HMRC is a fan of acronyms and the latest one you need to add to your accounting toolkit is MTD, which basically stands for Making Tax Digital. On the surface you may think, what’s the big deal I already submit my figures online at HMRC. But MTD is not just about the submission is about how you record, calculate and translate your information from your own digital records seamlessly into the HMRC tax system.
According to HMRC misappropriation of tax is costing the government £9 billion, that in itself is a big enough reason to take action. Whilst it is reported that all businesses are apparently doing their upmost to calculate and pay the correct amount of tax, if there is a £9 billion problem then it is clear that everyone could try a little harder. The shortfall is, well in short, massive.
Whilst looking to reduce the deficit MTD will aim to increase the positioning of HMRC on a global platform. The Government wants to be viewed as a leader in accounting administration and retrieving tax owed. It aims to secure a place as one of the best in the world by introducing the new rules.
With new technological advancements in the entertainment and gaming sectors. And with some UK households turning to voice recognition to request a favourite song or to turn on and off their lights. It would seem crazy to continue to allow something as important as accounting obligations to remain in hand written pocket books or on spreadsheets.
The process as it currently stands with everyone choosing to administer tax their own way, it’s easy to support a more unified approach. Especially if that approach simplifies, reduces time and costing errors. These changes will improve efficiency and effectiveness of business tax accounting.
With the changes sounding positive, there is one area that could cause problems. The pressure is now being applied back to the small business person to understand and implement the change, leaving some a little daunted as to what is expected.
Let’s face it, not all of us have opted to make our houses into smart homes. Some of us prefer a more manual approach and carry this way of working into our businesses. We take comfort from a pen and paper and filing receipts by hand. Meaning that transitioning into digital is not just an operational shift but also a mental one.
Plus it’s impossible to shy away from the cost implications on businesses. For those who operated their accounts from a simple excel spreadsheet or notepad there is now the extra expense to be found each month for the cost of an online system. And as much as we all like to be contributing to the economy we become less enthused when that cost is being removed from our own bottom line.
Running a small business is hard work. The word small, means we operate a tight ship with few resources, (if any), and finding the extra time and people to work through a new process adds pressure to the whole business.
However regardless of the fear, cost, time and extra work, the new process has to be adhered to. This is a legal requirement and once this fact is accepted, so can the plan to implement commence.
Lets make something very clear HMRC has not developed a new system. Instead they are rolling out a change in process. The process is designed to Making Tax Digital, ie, getting it off paper, out of spreadsheets and onto computers and apps via compatible software.
They aren’t dictating which system you should use within your business, instead they are leaving system compatibility to the companies that create them. They have stated that they are working very closely with said companies in terms of API’s to ensure that the systems themselves are up to the task. This means that the choice of system is up to you.
Instead HMRC have created a new process, outlining what businesses should do and when they should start doing it. As much as being enabled to choose a workable system, businesses may feel like they are only being given half the information. It means that for some businesses they will not only need to learn a new process but also teach themselves how to use a system ahead of the MTD deadline.
The process itself relates to VAT and Income Tax. If your business is VAT registered or turnover £85,000, the current VAT limit, then you need to take action from 1st April 2019. Also if you are self employed, own a rental property or have other income that you need to declare you will also be operating under the new guidelines.
There are some businesses that will be exempt from the first wave rollout. And won’t be required to operate under the new guidelines until October 2019 as the process for these businesses is still being tested. As with all accounting obligations it is best to check the inclusion of your own business with either HMRC or with your accountant. Failure to know what is expected of you could result in penalties.
If your business falls within the requirements then the bad news is that using a paper based process or an excel spreadsheet is no longer going to do the job. So to ensure you are following the rules the best plan of action is to start looking for an online system that will work for you.
There are plenty of accounting system options on the market that will enable you to manage your Tax requirements digitally. Research online, ask your accountant or reach out to other small business contacts to seek advice. To ensure you are operational in time for the deadline we recommend you start looking soon as you will need time to familiarise yourself with a new system.
By putting the onus onto the software providers means they will be responsible for ensuring the system integrates with HMRC. They will need to remain compatible with this new process and any unforeseeable changes that are made. And because the system is online, you will receive updates to keep your application operating platform current.
To keep your system working and free from computer hacking or viruses we always recommend that your system has virus protection. Plus you should update your cyber security policy and ensure that passwords are changed regularly.
Of course if you prefer your accountant can act as your agent, and by getting a login from HMRC can submit the information on your behalf. However like any area of your business we strongly recommend that you understand your responsibilities and the requirements on behalf of your specific business.
There is work to be done regardless of whether you use an excel spreadsheet or prefer an accounting book, ruler and pen. Whatever your current method we suggest you start sooner rather than later. So eliminate the fear and get doing, that way you will quickly become a new digital accounting master.
When you look at the actual changes, the title pretty much does a great job of summing up what needs to be done. HMRC is literally just Making Tax Digital. However like any change, great or small, the word change can have a large impact on your business especially if you, yourself are not digitally minded. If the change applies to you, then here’s a quick review of what it will mean for your business and personal tax:
1. To report your tax correctly
2. Pay any money owned
3. Keep online records of your receipts and accounts
4. Limit errors and mistakes
5. Increase efficiency
6. Download accounting reports as needed
7. Keep you on the right side of the law
8. Force you to move into the digital age
9. Help HMRC to stand out on the global stage
10. Do your bit for the UK economy
We know that any change to your business, especially in an area like accounts, can be daunting and stressful. At boffix we understand just how big this change can be for you and your company. We have a team of certified MTD accountants, ready on hand to talk you through what this new process change means and how we can help transition your business into the digital age.