If you’re a small business owner then you’re probably aware of the shift to digital tax – the monumental change that’ll see HMRC becoming completely digital by 2022. Making Tax Digital will make your taxes easier and quicker to manage, as you won’t have nearly as many forms to fill in. In fact, you’ll no longer be legally required to keep paper records.
While it may seem like a big change and a daunting prospect, it will actually make everyone’s lives easier in the long run. The digital system will mean you’ll know in advance how much tax you’re going to have to pay because it’s all updated in “real time”.
Sounds good, right? But are you prepared and ready to go?
Some important dates
To start with, Making Tax Digital is just about VAT. But that will change over time and all tax – from PAYE to Corporation Tax – will be covered.
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For VAT-registered businesses with a taxable turnover above £85,000, Making Tax Digital rules already came into force in April 2019. From April 2022, however, all tax-registered businesses – including those with a taxable turnover below £85,000 – will need to be MTD-compliant.
Watch this space. We’ll update you when HMRC confirms the next stages of its Making Tax Digital program.
What you need to do for digital tax
Already, many small businesses and self-employed individuals are updating HMRC quarterly using the new digital system. While this means you no longer have to wait until the end of the tax year to find out how much you owe, it also entails new responsibilities.
You’ll have access to a personal online account which you’re required to update – it’ll prompt you when action needs to be taken and includes support via webchat and messaging.
As stated above, Making Tax Digital just affects VAT returns.
It will eventually expand to include everything from Income Tax (expected in April 2024) to Corporation Tax (expected from 2026). The idea is that by starting with VAT, your business has time to adapt. But expand it will and – if you’re not already using online accounting software – this is the time to seriously consider it.
Making Tax Digital software such as QuickBooks simplifies the whole process by prompting you to add any missing or required data. It then automatically compiles it in such a way that you or your accountant can easily submit it to HMRC’s digital tax system. For now, this means your VAT return, but in time it will affect everything you do.
Making Tax Digital and your accountant
If you have an accountant or bookkeeper and have been using paper-based systems up to now, Making Tax Digital certainly will change the way you work. The best way of handling this change is to make the switch to an HMRC-accredited online accounting system.
And doing this will also change the role of your accountant. For the better. Instead of doing a lot of manual bookkeeping, your accountant will instead be able to use your accounting software and all its functionality to make sure your business runs smoothly, all your tax obligations are met on time and to advise you on the best way to grow your business.
It helps if your accountant is tech-savvy. Many accountants are, but if yours isn’t and you feel he or she would struggle with an online accounting system, you may find our register of accountants useful.
Overhauling the tax system on such a huge scale, HMRC are bound to encounter problems along the way. The deadlines for Income Tax and Corporation Tax will quite possibly move, so it’s advisable to keep checking the QuickBooks Blog for updates.
Whatever happens though, it’s advisable to get started with online accounting software right away. The sooner you’re up and running digitally, the easier the transition to digital tax will be.
It’s easier than you think to prepare for Making Tax Digital if you use QuickBooks online accounting solutions.
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