How Will New Tax Accounting Processes Affect Individuals and Small Businesses?
In 2015, the UK Government announced plans to introduce online reporting processes for taxpayers. What does this mean for businesses and individuals?
In the March 2015 budget, the Government announced a £1.3 billion programme that would revolutionise tax reporting. The five-year plan will introduce online accounts through which taxpayers can interact directly with HMRC.
The new system envisages quarterly updates that will effectively signal the end of the tax return as we know it.
As with any major change in financial reporting, the rules and timelines are still being finalised, but the current deadline for digital records is April 2018.
The change might seem daunting, particularly for the thousands of small business owners and self-employed entrepreneurs in the area, who should consider taking advice from their local tax accountants in Peterborough while there is still enough time to get prepared.
Making tax easier
In December 2015, HMRC published a document (.pdf) that fleshed out the Government’s budget announcement. In his foreword, David Gauke, the Chief Secretary to the Treasury, heralded digital tax as part of Whitehall’s “digital revolution” stating that it would “transform the experience of millions of taxpayers” by introducing a system that is easier, more efficient and more effective.
The document also set out a timeline for implementation. Like any major project, we can expect some dates to be fluid, and a detailed consultation that was originally scheduled for spring 2016 was the first to be pushed back while ministers waited to see the results of the EU Referendum.
Nevertheless, the April 2018 deadline for the first online submissions remains in place.
Impact on individuals and businesses
The Government has published a series of case studies detailing how digital tax can affect a cross-section of individuals, including landlords, pensioners and small business owners.
The case studies certainly point towards a much easier and less frustrating system than the current method of tax reporting. Using smartphone apps to regularly update pre-populated data fields looks far less onerous than the task of manually filling out pages of information once a year. But can it really be that easy?
The right technological tools
Research by the Institute of Chartered Accountants in England and Wales (ICAEW) suggests that many small and medium sized enterprises are not currently in a position to meet the 2018 reporting rules.
In its paper “Digitalisation of Tax, International Perspectives,” the ICAEW analysed similar projects in other countries around the globe. It found that digital exclusion is the biggest obstacle to full implementation of such programmes.
Businesses below the VAT registration threshold are particularly at risk in this respect, as these businesses are unlikely to have existing bookkeeping software. Indeed, an ICAEW survey earlier this year revealed that only 25% of UK businesses maintain electronic accounting records.
The good news is that for businesses and individuals alike, there is still time to get fully prepared for this aspect of the digital revolution.
In the long run, putting tax accounts online should make tax reporting quicker, easier and more accurate for everybody. Get the right advice and support to make sure it represents a positive change for you and your business.