Keepers Accountancy's Blog

How will Making Tax Digital affect small businesses?

Posted by Ludovica Zallot on Oct 20, 2016 5:00:00 PM

HRMC is planning the introduction of a new, fully digital tax regime which will apply to all businesses. With quarterly returns now a possibility, here is what small businesses should expect   

tablet portable device image by FH Consultoria
 
The plan, named Making Tax Digital, has already been partly introduced, with individuals currently able to log in and view their tax affairs online. HMRC is planning to extend this to all businesses by 2020, in a move that might have a significant impact on SME's - whether this will be positive or negative, it remains to be seen.
The main aspect of this "digital revolution" is the requirement of businesses to pay tax on their income each quarter rather than once per financial year. This is a worrying change for many businesses who feel they will be forced to complete accounts every three months, with all the administrative and accounting costs that would entail.
 
However, there is still uncertainty over how accurate those accounts need to be, or if estimates will also be accepted for the first three quarters.

One feature of the new digital tax regime is known and it might go some way towards lowering some of the increased administrative burden and accounting costs. The new system will be able to pull some of the required figures from available information, such as bank interest details, to automatically fill certain areas of a tax return. It might also deliver a more efficient way for firms to communicate changes and provide information to their accountants.
 
HMRC tax return by Images Of Money

A consequence of the upcoming "digital revolution", despite the fact that it will not come into force for a while yet, is that business should start preparing and looking at updating or obtaining accounting software that will allow a smooth transition into the new digital tax system.

For example, software such as KashFlow, which is used by some businesses for their bookkeeping, could help with submitting quarterly returns and calculate tax automatically.

However, many firms are not familiar with this kind of digital process and might find the new system difficult to cope with. On top of that, a recent KPMG survey found that many small businesses do not have up-to-date management accounts - and that this is directly linked to slower growth.
 
This is why getting small firms to digitally monitor payments might benefit them in the long term - as it will give them all the advantages that come with having a clearer picture of their financial situation. Greater knowledge of cash flow will lead small firms to make better business decisions, for example by helping them judge when it is the right time for investing and when it is best to hold back.  Small businesses might not only experience more growth as a result, but will also be better prepared for tax deadlines.
 
All in all, how will Making Tax Digital affect small businesses? While the move might seem a frightening prospect to some at the moment, there is still plenty of time for businesses to get sufficiently prepared and to incorporate more automated bookkeeping and invoicing systems in their activities. Utlimately, this gradual shift to more efficient digital methods might end up greatly benefitting small businesses.

If you have any questions about this issue, do not hesitate to seek professional help, or if you are with Keepers, talk to us now. On top of offering some of the best accountancy services in Sussex, we also give free business advice and free tips for small businesses. Book your Free Telephone Conversation with us now. Keepers, the proactive Sussex accountant.

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Topics: making tax digital, digital tax