Is your business ready for Making Tax Digital?
QUESTION: I have read about the changes coming through Making Tax Digital. What are these and are there any benefits for my business?
ANSWER: Making Tax Digital (MTD) is part of the government's plan to make it easier for businesses to stay on top of their day-to-day finances. HMRC wants to be one of the most digitally advanced tax administrations in the world – improving efficiency, effectiveness and ease of compliance. The plans signal the end of paper accounting for millions across Britain.
From April 2019, legislation will require businesses above the VAT threshold (currently £85,000) to set up a digital tax account and file quarterly returns online. Preparation starts now, with businesses and accountants moving online to improve efficiency, boost profitability and make the transition painless.
Any business whose year-end date is other than March 31 should consider using MTD systems far earlier. For example, a business whose year-end is June 30 will be required to file its VAT obligations through software for the quarter ending June 30 2019.
It is expected MTD will then apply to those VAT-registered businesses with turnovers less than £85,000 from 2020. It is still unclear as to when reporting other taxes digitally will become mandatory, but as the framework will have already been put in place it will not be too long after.
Almost everyone is affected by MTD. If you pay tax and file a tax return in the UK you will be affected — this includes businesses, landlords, individuals and non profit making organisations. Essentially, if you file a tax return, use an accountant, or get income from any place other than standard PAYE payroll, Making Tax Digital matters to you.
HMRC has stated that Making Tax Digital won't impact on people who are pensioners, solely paid through payroll / PAYE, or who have a secondary income of less than £10,000.
MTD is a completely different approach to filing your tax return online. For individuals, the self-assessment tax return will, over time, become a thing of the past.
However, it is expected that MTD will help small businesses and some of the benefits could be:
• You get a complete view of all your tax information, liabilities, and entitlements from a central place — your personalised digital tax account.
• It increases accuracy and reduces errors involved in reporting and filing taxes, so you only pay what you legitimately owe.
• You will have an up-to-date understanding on exactly how much you owe and the tax payments you will need to make. You don't need to wait until the end of the year to understand how much you or your business owes.
• Updating HMRC with your business and financial information will be faster and easier — meaning more time for you to grow your business.
• There's a lower chance of unwelcome compliance checks and audits from HMRC. Good news!
• You'll get digital nudges and prompts from HMRC to ensure you are capturing and reporting the correct information at the right time.
• Online billing means you can easily pay your tax straight away.
HMRC has confirmed that it will not be providing any online ‘cloud-based' software, instead it is working with commercial software providers to see how they can directly link together using Application Programming Interfaces (API). This process will allow your chosen software to automatically update you tax account, with information submitted to HMRC.
:: Feargal McCormack (firstname.lastname@example.org) is managing partner of PKF-FPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept liability for any direct or indirect loss arising reliance placed on replies.