HMRC’s plans for a fully digital tax system will see the biggest transformation to the tax system in 20 years. Our clients have already been contacted by HMRC encouraging them to sign up for the digital tax account. This is a pre-curser to the fundamental changes due to come in from April 2019.
The new system will see the end of the tax return for individuals, partnerships, trusts and companies. Instead, business owners, trustees and some individuals will be required to maintain digital records using software which is compatible with HMRC’s systems and to report to HMRC on a quarterly basis. Employees who have buy-to-let properties will also need to report quarterly if rents are in excess of £10,000 per annum. Owners and landlords will have one month from the end of each quarter to report turnover, expenses and any accounting adjustments such as stock, accruals and prepayments. There will also be a final sign-off nine months from the end of the accounting period to confirm that the information is correct and complete. Penalties will apply for late returns.
The new reporting procedures will start with smaller businesses. VAT will move onto the new system in April 2019 (there are some selected deferrals until October 2019 for certain entities), followed in later years by more organisations. To assist smaller businesses and in order to simplify the tax system there are likely to be new rules for revenue and capital expenditure, interest restrictions and restrictions to loss relief.
At present there are no plans to change the tax payment dates but a voluntary ‘pay as you go’ option will be introduced. Whilst some businesses will wish to pay tax on profits as they arise, the impact on cashflow should not be overlooked. Details on how to obtain a repayment of tax if cashflow is tight have not been finalised.
HMRC already receives certain information direct from third parties such as payroll details, interest from banks and rental income from letting agents. This information will be used to pre-populate the digital tax account. Whilst this should reduce the burden to obtain and supply this information separately, concerns have been raised that the information sent to HMRC is not always correct and it will be up to the taxpayer to sort out any discrepancies with the third party.
The proposals are currently out for consultation and only when HMRC has considered the responses will the detail be finalised. For our clients, this will be a real-time system with more frequent contact, greater review, greater workloads, a change to timetables and in some cases, additional costs.
In the meantime, our staff are working with professional bodies to ensure we are at the forefront of the changes; Hazel Gough, Tax Partner, sits on the Institute of Chartered Accountants of Scotland’s Making Tax Digital steering group, and will provide regular updates as changes are announced.
More information on Making Tax Digital
From Making Tax Digital to financial integrated solutions, the world of technology is an essential part of our world. In response to the technical challenges that face our clients we have launched C+T Digital to deliver advice and support across a variety of digital areas including:
- Making Tax Digital
- Onboarding digital accounting
- Open banking solutions
- Online web shop integration
- Tailored financial eco-system integration
Through the efficient use of technology, all organisations can identify, understand and take advantage of efficiencies to save time and money. Key areas of focus include:
- How technology can play an increasingly important part of the success of a business with tailored software solutions.
- Learn about challenges in your sector and identify systems to monitor and control potential outcomes.
- Tailor financial systems to the needs and requirements of your organisation, not just for today, but to support you as you evolve.
- Learn how to use regular reporting tools using intelligent business management software to identify and maximise growth.
- Support project cost control and effectively monitor ongoing performance.
In addition to identifying tailored solution, the C+T Digital team has a wide range of experience in the accounting technology sector and work closely with a number of technology solutions including Xero, Quickbooks and Sage, to name a few.
If your organisation is looking to identify and exploit efficiencies to increase return on investment, contact Allan Davidson at email@example.com or call 0131 558 5800.