Tax is going digital whether companies like it or not.
The first half of this remit involves making sure that there is a rigorous system in place to detect tax evasion and thereby to discourage people from committing it in the first place; while the second half involves making sure that tax returns are processed as efficiently as possible.
Both of these purposes are served by moving tax returns to a digital format.
Going digital requires digital record-keeping as well as digital returns
If the digital switch were only about submitting annual tax returns online rather than on paper, it would probably just have been shrugged off by the SME community. The key sticking point is the forthcoming requirement to undertake record-keeping using software which is compatible with HMRC’s IT systems. In other words, companies which currently do their record-keeping on paper or via standard spreadsheets are going to have to switch to using HMRC-approved accounting software. The main reason for this is that in future, SMEs are essentially going to have to plug in their data to HMRC on a quarterly basis, rather than just filing an annual tax return.
When is a tax return not a tax return?
The question of the need to provide data to HMRC on a quarterly basis has been quite a bone of contention amongst UK SMEs. On the one hand, HMRC is adamant that these updates will be far less onerous than full tax returns. On the other hand, at this point, SMEs are still waiting for information on what, exactly, these updates will mean in practice so they can make up their own minds on that.
One point is clear; as a minimum, SMEs are going to need to deal with their taxes at least four times a year, rather than just once.
How can companies prepare for these new rules?
- First of all, accept that they are a reality. You either deal with them or close your business (or risk the penalties for non-compliance).
- Start looking for accounting software which will allow you to comply with the new requirements. For most SMEs, a cloud-based package (ie, one which you access through a website rather than installing it on your own PC) is probably the best way to go. That way your provider will take responsibility for data security and a reputable provider will almost certainly have more knowledge in that area than the vast majority of SMEs.
- Look at your processes and ways to make them more “digital friendly”. For example, if you are still keeping shoeboxes of receipts, or even scanning them and keeping them in digital folders, now could be the perfect time to invest in software which will capture the relevant data from them and enter it automatically into your accounting software.
Even if you are upset about the changes, the cloud could come with a silver lining in that it could offer you a great opportunity to streamline your own business and improve your own bottom line.
Author: Javeed Baig
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic.
Published on 3rd February 2017
(Last updated 23rd March 2018)