Partner Article

Bringing our Tax System into the Digital Era

The world is moving online and we now expect to receive digitally-led self-service in almost all aspects of our lives. From paying our council tax through to shopping and banking, the cloud sits at the heart of the services we have come to rely on. Because of this, HMRC has developed Making Tax Digital, and while details are still being finalised, we will see the tax system digitsed by 2020 – an overhaul to make it quicker and easier to manage taxes without having to fill in so many forms.

This will significantly impact millions of small businesses, no matter what industry they work in, and will allow owners to keep a constant tab on how much tax they need to pay. Instead of putting financial admin to one side and processing it all in one go, this new system will make it far easier to budget and keep tax affairs in order throughout the year, reducing the stress of the current January 31st annual deadline.

This is a big change and here are my three tips to ensure small business owners are prepared for the impact of Making Tax Digital.

Get to grips with how your business will be affected

From April 2018, many of the UK’s small businesses will need to start updating HMRC quarterly using the new digital system. While this means SMEs no longer have to wait until the end of the tax year to find out how much they owe, it also entails new responsibilities. They will have access to a personal online account which they will be required to update; it will prompt them when action needs to be taken and includes support via webchat and messaging.

The idea is not to create more work for time poor SMEs, but to make their lives easier. However, the government has recognised that such a significant change will take time, and some businesses will be exempt from the new digital record-keeping and quarterly updates, including charities and those earning under £10,000 per annum. Whether small business owners are compelled to go digital by 2020 or not, now is still a good time for SMEs to investigate what their business could gain from making the transition. More details on HMRC’s proposals can be found here.

Embrace new technologies now

One of the biggest barriers to the government’s ambitious programme will be comfort in using new technologies. To those still keeping paper records, going digital might feel a little daunting, but millions of businesses have already found that using software and apps makes their lives easier. The cloud allows small business owners to manage their accounts online, wherever and whenever it’s convenient. It may take some time for SMEs to familiarise themselves with this new technology, but the time and cost savings simply can’t be ignored.

Take it one step at a time

HMRC is not planning to go full-throttle and launch the new digital tax system at once. Last year, they begun testing the digital reporting feature with small businesses. By early this year they will be enabling small business owners to report secondary sources of income through their digital tax account and by the end of next summer SMEs will be able to update both income tax and National Insurance contributions via online accounting software. This incremental process of feature deployment will continue over the next three years until the digital tax system completely replaces the current one. Going digital one step at a time will make it a less onerous process for your business.

As we will be discussing at our upcoming event, QuickBooks Connect, which is bringing together hundreds of small businesses from across the country, its crucial to remember that the new system will be implemented in stages from April 2018 to 2020 so SMEs have plenty of time to adapt to these changes and feel confident managing their finances and taxes online. There’s no need to panic. The new digital tax system will not only go a long way to helping small business owners keep on top of their finances but it will also bring HMRC into the digital era.

This was posted in Bdaily's Members' News section by Dominic Allon .