Firms prepare for Making Tax Digital

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Firms prepare for Making Tax Digital

Businesses will be given at least 12 months to prepare for the transition to digital tax accounts.

Businesses, self-employed people and landlords will need to submit quarterly updates to HMRC and keep their records digitally by 2020, but this will be phased in. The current plan is to start quarterly reporting from April 2018 for landlords and the self-employed, with micro business next to come online.

After the publication of draft legislation, the following details have been confirmed:

  • firms will be able to use spreadsheets to record their receipts and expenditure
  • quarterly updates will not apply to charities
  • those with turnover of under £10,000 a year will be exempt from the process
  • accounting for income and expenditure on a ‘cash in, cash out basis’ will be extended.

There will be a 12 month period before late submission penalties will be applied. This will allow businesses to get used to the new system and allow for feedback.

Jim Harra, director general customer strategy and tax design at HMRC, said:

“The appetite for digital services is growing and traditional paper-based processes make no sense in the 21st century where the vast majority use digital services.”

Preparing for the changes

One of the most noticeable changes for businesses is the need for digital software to keep both company and individual records up to date.

A March 2016 business survey by the ICAEW found that 75% of respondents were not using software to maintain their accounts.

Businesses will be able to use spreadsheets to collate records but must ensure that the documents are compatible with the software available.

It is the business’ responsibility to choose software that both suits their needs and is compatible with the HMRC digital tax account system.

We can help you to manage these changes – contact Vicki Harper for details.