In March 2015, the government announced a new initiative called “Making Tax Digital”. The aim of this was to bring the tax system into the 21st century. It should make it easier for individuals and businesses to keep their tax affairs efficient and in order. HMRC wants to have the most technologically advanced tax system in the world.
The government hopes that this initiative will make life much easier for businesses. There will be fewer forms to fill in (including the end of the annual tax return), budgeting should be easier, and the chance of errors reduced. It’s estimated that it’ll save businesses £400m a year.
Although the first deadline to pay attention to is April 2019 (as we will discuss below), in reality, it could be as early as May 2018 for you.
HMRC has some ambitious plans. These include:
Originally, the government planned to have everything in place by 2020. However, following consultation, the chancellor announced in 2017 that they wanted to slow down the implementation.
Some of the above plans, such as the digital tax account for each individual and business, have already been implemented. Other changes have been postponed, particularly for smaller businesses.
The first big requirement for businesses to be aware of is that from April 2019, businesses who are VAT registered will have to keep their records (such as all receipts and invoices) digitally and provide HMRC with quarterly updates on their VAT.
However, as we mentioned at the beginning, the April 2019 date is only the official date. In reality, there’s also the preparation time you’ll need to take into account if you’re going to be ready. This is particularly the case if you do not currently use an accounting software for your accounts.
It is quite a hassle to change over to a new accounting software half-way through your accounting year. Instead, it is best to do this at the beginning of your accounting year. This means that in order to be ready for the April deadline, you’ll need to start using an accounting software at the beginning of your accounting year.
Once the government has proved the system works, they will then roll it out to all businesses in the UK. However, this will not take place until April 2020 at the earliest.
Part of the reason for the delay, is to give time for people to get used to storing receipts and creating invoices, online. This means that it’s a very important habit to get in to because soon you’ll be required to do it anyway.
We hope this blog has given you a good introduction to some of the changes being planned and how it will affect you and your finances as a business.