The move towards making the submission of your tax return a digital-only process is carrying on at pace. This switch towards using zeroes and ones, rather than hard-copy paperwork, is being driven on the whole by HM Revenue & Customsâ€™ (HMRC) own ambitiously timetabled Making Tax Digital initiative.
But the big question for most businesses and accountants is a simple one:
â€˜Will we be ready for the 2018 and 2020 deadlines for making our tax digital?â€™
How do I get ready for Making Tax Digital?
Thereâ€™s been a fair amount written within the accounting press regarding the introduction of Making Tax Digital. I wrote a blog on the digital transformation of tax.
last August, dealing with the introduction of the new regime and the need for business people and some individuals to embrace cloud technology.
Moving your business to a cloud-based business system is particularly relevant in relation to your accounting packages. With one of the new breed of cloud accounting software platforms in place, your accounts, key tax numbers and all the required receipts and documentation are already safely stored online in a digital format â€“ and that makes life considerably easier when it comes to submitting a digital return and linking your financial systems to HMRCâ€™s proprietary online system.
With cloud accounting at the core of your business system:
â€¢ Your receipts, invoices and paperwork gets scanned in, using a tool such as Receipt Bank to automatically scan, read and update your bookkeeping numbers accordingly.
â€¢ Â Your financial data is pulled into your cloud accounting package and coded to the right accounts and against the correct budgets.
â€¢ Â The tax information needed by HMRC is pulled into a pre-defined template, with the data sourced directly from your cloud accounts.
â€¢ This digital tax return then submits all the required data and documentation straight to HMRC through their online portal.
The challenge of meeting the digital tax deadline
With a cloud system in place, there will be no searching for missing paper receipts, no last minute rush to locate the right documents and no panic to get your accounts and tax information into the right format. The whole process should be seamless, fast and totally efficient.
At least, thatâ€™s the theoryâ€¦
The key challenge for most businesses will be making this switch to cloud and digital, getting your systems operating at an optimal level and having all the software in place in time to meet HMRCâ€™s 2020 deadlines. In fact, if youâ€™re self-employed and submitting an income tax return and class 4 National Insurance contributions (NIC) youâ€™ll need to have a digital system up and running by April 2018â€¦ and thatâ€™s only a year away!
Tying up the loose ends
HMRC issued some consultation documents around the digital tax transformation last year along with their responses. Draft legislation (relating only to some specific areas of Making Tax Digital) was also published at the end of January 2017, so HMRC is doing itâ€™s best to keep business informed of progress.
However, at this stage we still donâ€™t have the final picture of how a digital tax system will work. There are many loose ends questions yet to be answered, not least of which is the question of how HMRCâ€™s own online portal will function, and how youâ€™ll connect to it. Its likely to be that an API (application programming interface) will be released that allows the various different cloud accounting providers to integrate their solutions directly with HMRCâ€™s digital system â€“ but thereâ€™s still plenty of smoke and mirrors around the detail of how this will work.
The hope is that when the final regulations are published that this, and many other key questions, will be answered.
Is the deadline realistic?
There had been hope in some quarters that pressure would be exerted on HMRC to delay the introduction of the new digital tax scheme. But recent responses have shown that thereâ€™s a definite wish on behalf of government to ensure that the new system comes online as soon as possible.
5 April 2018 will signal the introduction for the self-employed, sole traders and landlords etc. Whilst this seems some time away, itâ€™s only 12 months and itâ€™s amazing how quickly time passes when youâ€™re busy running a business. As an accountant and business adviser thatâ€™s been through the cloud transformation process with a host of different small businesses, Iâ€™m concerned â€“ and that concern stems from a genuine worry that many business people simply wonâ€™t be ready for the new regime.
We help you make the switch
If you fall into the self-employed category, or if youâ€™re a bigger limited company looking to upgrade your systems in time for the later corporation tax deadline, please do make an appointment to come and talk to us about transforming your tax systems to meet the digital deadline.
Itâ€™s imperative that thought is given to how the introduction of these new rules will affect you. With the some timely consideration of the timescales (and the potential impacts) you can plan how to deal more effectively with the digital tax imperative, moving forward. Undoubtedly, planning ahead and upgrading your accounting system will make your business life considerably easier.
At Caplan, weâ€™ve been involved with cloud accounting software for over seven years, using a number of different packages. Weâ€™ve got the experience and knowledge to help you review your existing accounting processes and move them over to a cloud-based system â€“ with all the advantages for meeting the Making Tax Digital cut-off date.
Call us or drop us an email to arrange an initial chat about your tax circumstances and how you can most effectively make your business ready for digital tax.