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Tax rules are changing
Whenever we hear that changes are being made that will affect our business we instantly curl our toes and go into a childlike strop. What now, we cry. What can possibly be more important than letting me get on and run my business.
The reason we react this way is out of fear, worry and confusion. We let our rational thinking cloud our thoughts and our judgement. By doing so we make decisions based on what we hear, what we think and very little on what we know.
This quick guide has been laid out to dispel your worries and your fears. Instead we want to tell you what you need to do and by when. We hope to provide you with enough information to at the very least enable you to quit thinking and get doing.
The basic reality is that HMRC is making mandatory changes to VAT Tax and Income Tax. The changes are geared towards enhancing the way we do Tax and making how we do it digital. Making Tax Digital will come into force from 1st April 2019, and all businesses need to understand how this change will affect them.
Whereas the change is ultimately a positive one, it doesn’t mean that it won't affect how you manage your business, or that it won't mean extra work and money. But once you accept that the change is happening and that all you need is to learn a new process, your business will benefit and so too will the economy.
What’s happening and when?
So what is actually changing. Well HMRC is Making Tax Digital (MTD). To understand if this change affects you, your business needs to fit into a set of criteria:
1. Your business is registered for VAT;
2. Your business is turning over £85,000, the current VAT threshold; and
3. Whether you or your business has income to declare from properties or other means.
If your business falls into the above criteria then the way you manage your VAT and Income Tax will change from 1st April 2019. This is a mandatory change and you must adhere to the new set of rules.
If your business doesn’t meet the criteria there are some exceptions. As the registered business owner you are responsible for checking directly with HMRC or your accountant. A specific group will see changes happening from 1st October 2019 as the process for them is currently being tested.
How will the change affect your business?
You will no longer be able to manage your accounts in a ledger or using a spreadsheet. As neither of these methods are able to be managed digitally. Instead you will need to adopt a digital system. This system will enable you to meet the requirements and ultimately help you manage your Tax online.
To find a suitable solution the choice is up to you. For those of you whom know nothing about finding a system fear not. Instead turn to the internet and begin researching. Type in accountancy digital software and you will be inundated with companies. To ensure you choose wisely perhaps go with a big name such as QuickBooks or Sage.
The bigger the company the more support, training and confidence you will receive. HMRC is working closely with software developers to ensure that their systems are compatible with the new process.
In terms of the financial outlay, there are many deals to be found online. Especially in the wake of the new guidelines being launched. By giving yourself time you will be able to find the right company, system and cost that works for your business.
How will the changes benefit your business?
HMRC is a government owned company. Their job is to ensure that UK businesses are legally and honestly filing their returns. Unfortunately the old process has accumulated in a £9 billion shortfall. This is not suggesting that businesses aren’t being honest, but it does suggest there’s a flaw in the current system. By adapting the new process HMRC can gain greater perspective on how Tax is being managed.
Every Government has problems with fraud, errors in calculations and late payers. And with the world becoming digital, there is no better way for the UK Government to stand out as a global leader by using technological advancements. As a small business you will also benefit by being part of a growing economy and enhancements in Tax regulation.
By being forced to adapt and change your business process you will gain a greater insight into how to manage your Tax and accounting obligations. Getting out from under manual filing, and paper shuffling and transferring your receipts and records online will give you a better understanding as to your financial status.
With the use of any system, operators become more efficient, reducing time and mistakes. By managing your accounts online you will be able to upload receipts, pull off data and reports easily and as you need. You will find that sharing information with your accountant and HMRC will become more efficient.
Educate your business
To fully understand what is required of your own business don’t delay, seek advice from your accountant or direct with HMRC. The more you learn the more knowledgeable you will become on the subject. Making Tax Digital may feel like a huge pain but in the long run the benefits to your business will outway the initial pain you may feel during the setup process.
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