Welcome to the third of our video blogs on ‘Making Tax Digital’. In the previous vlog in this series, we looked at what digital tax might look like and the software, which will essentially do most of the job for you. Today, we would just like to answer the burning question that’s been on everyone’s mind, and that is: “Will this take lot more time to deal with and will it cost more in terms of accountancy fees?” The answer is; it’s just too difficult to tell at the moment, because everything is still in the consultation and development phase, we don’t know yet what the final process will be.
One thing that is obvious from HMRC’s plans so far, is that they want to make sure that they have information about businesses and companies every quarter, rather than only getting your data once a year.
Making Tax Digital Part 3
One of the types of business owner that we often come across, is someone that waits until the year end, and then waits another 8 months right up until their accounts are due that very month, or even that very day! Only then do they start doing all their book keeping work and getting their records together. Under the new system proposed by HMRC, that way of doing things simply will not work. They will have to keep their records up to date every quarter.
For those businesses that keep their records up to date already, this new system probably won’t cause any problems. The book keeping will have been done and will be used by their accounting software to create a set of accounts which will then be submitted to HMRC electronically.
How we expect this to work, is that that every quarter the accounts being submitted to HMRC will be considered an estimate because there are always adjustments made by accountants throughout the year. These accounts will be submitted quarterly, then at the end of the year there will be an exact, final set of accounts that are submitted to HMRC. As the accounts have been submitted throughout the year and the business will have made tax payments, at the end of the year, they may have over or underpaid tax, but as you can imagine, it will be much easier to make up a slight shortfall than it is to pay tax on a whole year. This will be a lot better for company cashflow.
Accountancy fees, will they increase?
In terms of accountancy fees, there may some extra costs involved in setting things up initially and submitting quarterly returns, it’s too early to tell.
What You Can Do Now
If you want to put your business in a better position to be able to accept these digital tax changes, then it’s a good idea to change your practices now, for example, start keeping your records up to date every month or every quarter rather than every year if you aren’t already. It’s also worth looking at cloud based accountancy software, because that will mean when digital tax comes into force, you will already have been utilising a compatible system, minimising the changes you will need to make.
There are a lot of things you can do today to prepare for digital tax, and even if these don’t come into effect, we would still recommend cloud based accountancy software as you can access it anywhere in the world, restrict access to certain key staff members. Most Cloud based software like Xero links directly to your bank account, automating a lot of your record keeping for you.
We hope you have found this series of video blogs interesting and informative. If you are a small to medium sized business and have concerns regarding Making Tax Digital, please contact Northants Accounting on 01604 330129 or email firstname.lastname@example.org
Tel: 01604 330129 Email: email@example.com