If you’re active on social media, you will have probably seen the term ‘Making Tax Digital’ mentioned here and there. You may have also seen that within a matter of days a big announcement is due concerning it. But what exactly is it and how will it affect you? A recent report carried out on the awareness of ‘Making Tax Digital’ revealed that a staggering 94% of UK small businesses have no idea what it actually is. We speak with Tolu Ajimoko, Senior Commercial Strategy Manager at IRIS Software, who helps explains what’s entailed and how it can potentially affect your small business.
So what exactly is ‘Making Tax Digital’?
‘Making Tax Digital’ or MTD for short, is a government initiative setting out a vision for ‘a transformed tax system and the end of the tax return’ by 2020. It’s the biggest change to the way tax is administered for tax payers and businesses since Self-Assessment was first introduced. The current proposals are being phased in for most businesses and landlords from April 2018 and ending in April 2020. The first to be affected by these changes are millions of sole traders and landlords who will have new tax obligations from April 2018. Some of the highlights of the proposal include:
1) Qualifying businesses and landlords will be required to send HMRC updates of their income and expenditure at least quarterly. There are some exemptions for this, such as businesses and landlords with an income of less than £10,000.
2) Businesses will have the option to pay tax on a voluntary regular basis. By doing this they will be able to align their tax to the income that they are making, allowing them to understand how much revenue to set aside to pay tax.
3) As businesses and landlords will be sending quarterly updates, there will no longer be a Self-Assessment tax return form to complete by January each tax year. Instead, this is replaced by the quarterly updates and an end of year update which will give the tax payer the ability to confirm the quarterly updates are correct, make any tax adjustments and make claims for any additional allowances.
How is ‘Making Tax Digital’ likely to affect small businesses?
There are several initiatives as part of MTD specifically aimed at benefiting small businesses:
1) The introduction of digital record keeping will give businesses a more real-time view of how their business is performing that would otherwise only be available at the end of the tax year
2) Businesses can simplify their income and expenses reporting by keeping records up to date using digital record keeping tools such as accounting software
3) It provides businesses with an opportunity to get an estimate of what their tax liability is likely to be, and set aside enough money to meet their tax liability
What should small businesses do in order to prepare for MTD?
Part of HMRC’s MTD initiative is making sure businesses start to keep their records digitally and update them at least quarterly. This requires digital tools such as accounting software like KashFlow to meet these obligations. HMRC have indicated that there will be minimal impact on those businesses already using digital tools, therefore in preparation of the mandate, businesses should explore the software packages that are currently available on the market.
And what benefits are there for small businesses to use cloud accounting software to handle their tax affairs?
Cloud-based accounting software such as KashFlow are built to be intuitive and easy to use for any business, making it fast and efficient to do key tasks such as raising invoices. It can be accessed anywhere and on any device, meaning that businesses that work from different locations can perform key tasks wherever they are and on any device, such as a laptop or mobile device. There is also no need to worry about keeping backups of your data for situations where your IT systems fail, as it is backed up securely by the software provider.
KashFlow lets small businesses to easily keep on track of crucial tasks so they can feel more in control. Quick and easy to set up with no download required, currently over 70,000 customers use KashFlow to generate online quotes, create fully customisable invoices, balance their books and keep track of their business spend. For a free, no-obligation 1-2-1 demo just call the KashFlow onboarding team on 0344 815 5779.