It’s official. By January 2018, the majority of individuals and businesses will be on a digital tax reporting system. This change was arguably inevitable as many other aspects of our surroundings make this digital switch, but it may create difficulties for those who are not prepared.
While there are those that denounce HMRC’s move as an invasion of privacy, most countries have had a digital option or requirement for filing taxes for quite a while. Even with the criticism that HMRC is struggling to get this all implemented, the change is definite. Their belief is that by 2020 paper tax forms will be virtually extinct.
This adjustment will significantly impact small businesses in particular, who have relied on simple spreadsheets or the “shoebox” method of record-keeping. They will now have to get up to speed with software that is able to track their accounting records more accurately. The Making Tax Digital (MTD) initiative may find some of these owners scrambling to meet the new requirements. As Richard McNeilly, Chair of the UK2000 Group Digitalisation Taskforce, recently said:
“The shoebox method users will have to learn how to keep records, invest in software and then spend time inputting the data they collect into the software… the change to quarterly reporting will require all businesses to change their habits, but over half of the firms we surveyed are also going to have to change the systems they use to record data.”
How To Embrace The Digital Change
Most of us already have digitised much of our lives – online banking, online shopping, booking holidays, etc. These advancements allow our day-to-day activities to occur with far greater convenience and a digitised tax reporting system will similarly streamline particular tasks for businesses.
How do you as a small business owner prepare? Here are a few guidelines you can start with right now:
- Sit down with an experienced tax accountant or firm and have a discussion about what you need to do to get the right accounting system for your business.
- If you have not already, purchase an efficient accounting software package that will produce the kinds of reports you will need. A tax accountant will be able to recommend one that correlates with your business type.
- Begin in-house training on the new software and practice using it. By the time you must be in compliance, your system will be ready to go and the transition will be smooth.
There Really are Some Benefits
Once converted, you will have your own digital account with HMRC. This gives you 24 hours a day access, just as you do with your bank account. You can update records, file your quarterly reports and know at all times what your current tax liability is. This means far fewer “surprises” that often come at the end of a tax year. Ultimately, the sooner you make the transition, the easier it will be for you and your business.
Many Thanks to Bart Kot for his invaluable insights.