Making Tax Digital - Under the Government's new plans, all small businesses, the self employed and landlords with an annual income of £10,000 or more will have to have to keep digital records using software. They will have to update HMRC quarterly on their summary income and expenditure (currently this is annually), and this update will have to be through a digital platform.
Recent studies (UK200Group) have found that businesses are just not ready for it, with many struggling with digital financial management, and this will cause some serious issues when MTD comes in.
According to the UK200Group's survey only 35% of businesses are using accounting software to keep their business finances records up to date. A further 27% use their computers in some way - for example using excel spreadsheets and 23% are using manual, paper records. The remaining 16% are reliant on dumping it in a shoebox and giving it to their bookkeeper or accountant to sort at the end of the year! All but the 35% using accounting software are going to have to change, for some this is going to be a huge challenge.
In the long run, MTD is intended to make the whole tax process easier for small businesses, a digital interface will be used to update HMRC with financial reports quarterly, this means that businesses will have to keep on top of their accounting and there is no guesswork throughout the year on how much will be owed at year end. This also gives the business owner more regular reports on the business' financial standing.
Businesses will not have to start using a digital platform to update HMRC until April 2019 and initially this will just be for their VAT returns, so if your business is below the VAT threshold and you have chosen not to register voluntarily you will have more time.
Which accounting software? At CT Financial Services we work with Xero, a cloud based software package who are, along with many others, working to ensure that their software conforms with HMRC's new regulations
By using a certified bookkeeper or accountant you can be certain that you don't fall foul of the new rules.
More information can be found on the HMRC website;