Friday, 15 March 2019

Finance Fridays - Making Tax Digital or Difficult?

We were asking is cash dead? for last week's Finance Fridays. This week we are talking about the latest changes coming into affect from 1st April as part of HMRC's Making Tax Digital plans. On Wednesday the Chancellor, Philip Hammond, said in his Spring Statement that the current plans are still on track despite calls for it to be postponed or cancelled. So what is Making Tax Digital all about?

What is Making Tax Digital? - It is a series of plans to make those needing to file tax returns do it online. At the end of it returns will be made quarterly rather than just once a year as it is now. The idea is that it will benefit taxpayers as they will no longer have the pressure of getting all their records together in one go.

For the government it means they have a clearer idea of the tax paid on a regular basis rather than just once a year. This should make things more efficient by eliminating paper forms and getting rid of the annual panic to file tax turns. It is hoped it will reduce human error from data input as well. HMRC currently estimates that it loses £9million a year from carelessness and deliberate mis-reporting of VAT.

Who does this affect?
- Businesses and self-employed people who are over the VAT threshold of £85,000 a year.

Who is exempt? - There are some businesses which the 1st April deadline is being deferred until 1st October 2019. These include trusts, local authorities, not for profit organisations that are not set up as a company and if it is based overseas.

There are other businesses and individuals that are permanently excluded from the initiative due to their digital limitations because of religion, age, disability, or remoteness so not being able to get the internet.

Why is proving controversial? - In order to file the tax returns digitally new software is required. This is not being provided by HMRC but by a number of approved software companies. Some companies are offering free trials but it is likely that they will be payable services in the future. Many small businesses are having to absorb the cost themselves while others are paying accountants to do another job for them.

There is a concern that not enough individuals and businesses have implemented the software in time and it is proving too costly to do so because of the purchase price plus the cost of training staff. At the moment only about 37,000 businesses have signed up for the new software but it is hoped that by the end of April this figure should be about 300,000. It also means that some individuals who will be obliged to use the new system will find it difficult to use as their trades are not centred around online systems and they will have to learn a new skill.

Are you affected by the changes? Have you got your business ready for it?

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