Fiona Fraser of Fiona+ Accountants discusses what the introduction of HMRC’s new Digital Tax Regime means for small businesses
“We live in a world in which services are increasingly moving online; from doing the weekly shop, to booking a doctor’s appointment, booking a train ticket or next year’s holiday. This is just as true when it comes to finance, where millions have been benefitting from the ease and efficiencies of online banking for years. Now, the Government, with a wish to make tax compliance simpler, has tasked the HMRC to bring over five million businesses’ tax records online. By 2020, it aims to have fully integrated all sizes of businesses, individuals, landlords and companies into its ‘digital tax regime’.
“As a ‘one stop shop’ and source of all necessary information, the digital tax regime will make it easier for users to register, file, pay and update tax information online, at any time. Indeed, HMRC is replacing the annual submission of Self-Assessment Tax Returns with a quarterly digital tax account submission and payment. The latest guidance is that if your company has an annual turnover exceeding £85K, you will be required from April 2018 to submit your tax returns digitally, four times a year instead of the traditional once a year. Companies with an annual turnover less than £85K will need to do the same from April 2019 onwards.
“So what does this mean for small businesses? Certainly, everyone who pays tax under the Self-Assessment system will be required to open an online account with HMRC, which will work in a similar way to online banking and will let users register for new services, update information and make payments conveniently. The taxman has stated that the new regime will be similar to the existing Pay As You Earn process for employees, which recently transitioned to a Real Time Information (RTI) reporting system.
“Many freelancers and contractors are concerned that submitting four tax returns per year will add to their administrative burden: a position anyone who has spent their Christmas compiling the annual tax return will understand. In addition, on average, the management accounts of small businesses are four months out of date, so this suggests that businesses may struggle to adapt to the new, more intensive regime.
“However, advanced digital accounting software, such as QuickBooks, can help make life much easier, by streamlining the submission process and enabling users to submit their returns at the push of a button. The software can be synchronised with your corporate bank account, enabling you to import your transactions and assign them to invoices, bills and expenses. This generates a real-time profit and loss (P&L) that your accountant can review before you submit your tax return via the platform. There is no difference in the amount of effort required for this method of tax return submission, whether it’s annual or quarterly. Four times a year thankfully does not have to mean four times as much work.
“Keeping your digital accounts up-to-date also enables you to plan business development more strategically. Businesses with accurate financial records have been found to grow twice as fast as companies whose records are nine months old1. If you want to find out how QuickBooks can help streamline your tax return submission process, please call us at Fraser+ Accountants on 01738 450456.”