April 2018 feels a long time away at the moment, but it will be a significant month for small businesses, as it’s the month that those not registered for VAT will need to begin complying with the Government’s new digital tax system. Are you ready for the change? Probably not, apparently…
Thumbs Down to Compulsory Digital Accounting
In April 2018, digital record keeping will become compulsory for small businesses, with larger businesses following by 2020. Currently it’s proposed that rather than submitting an annual tax return, businesses will be required to ‘keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account,’ according to HMRC’s ‘Making Tax Digital’ document.
Yet research commissioned by ICAEW (Institute of Chartered Accountants in England & Wales), which surveyed 500 UK businesses, revealed that 75% of those surveyed didn’t currently use accounting software to maintain digital accounts – and only just over half (55%) supported HMRC’s drive to encourage businesses to submit accounting and tax information online. This literally half-hearted support for digital accounting dropped even lower when respondents were asked if they felt online submissions should be compulsory, with only 18% in agreement.
Where Will Digital Returns Hit Hardest?
ICAEW’s survey showed that those most affected by the move to compulsory digital record keeping will be sole traders and businesses in the manufacturing and construction industries.
82% of sole traders have yet to make the move to digital accounting and 41% of manufacturing and construction companies surveyed said they still used paper-based accounting systems.
Paul Aplin, Chairman of the ICAEW Technical Committee, said: “We fully support HMRC’s ambition to increase the use of digital technology to make meeting tax obligations more straightforward. These changes should however be a matter of choice for business owners and should not be made mandatory. Businesses should be able move to the new system over time when they are ready. Government claims that these proposals will contribute to reducing business tax compliance costs by £400 million, but we fear that many small businesses will in fact face additional costs when digital record keeping is made mandatory.”
Be Prepared
If you don’t already keep your accounting records electronically, now is the time to start thinking about doing so – and finding an accountant that will help you make the move. You should also familiarise yourself with HMRC’s digital tax services so that you know your way around the system. In this way, you can ensure that it’s familiar territory to you and avoid panicking in April 2018!
Check out Pandle’s Making Tax Digital accounting software
You may also find David Gauke’s statement reassuring. In February, the Financial Secretary to the Treasury said:
“This transformation does not – repeat, not – mean four tax returns a year. What it means is that by 2020, most businesses will be keeping track of their tax affairs digitally, updating HMRC at least quarterly via their digital tax account.
Importantly, these quarterly updates will not involve the complexity of a full tax return, where the business, or their agent, has to gather together and manually input data onto an electronic or paper form, and then perform various calculations. Instead, updates will be generated from digital records and in most cases, little or no further entry of information will be needed. It will be much quicker, easier and far less burdensome than the current process. The agony of the annual tax return will be a thing of the past.”
Try to keep this silver lining in mind if the words ‘digital’ and ‘online’ still strike fear in your heart…
