If you run a small business in the UK, chances are you already know how stressful filing your tax return can be. Gathering all of your receipts together, working out your expenses and making sure your figures are accurate can be a headache. When April 2019 comes around, you will find a few changes that will see you saying “Goodbye” to those yearly paper and online tax returns and “Hello” to HMRC’s Making Tax Digital. What is more is you will no longer be able to submit your tax return via HMRC’s website, you will have to submit it via their compatible software.
HMRC has decided that as of April 2019 businesses that have a turnover of £85,000 (The current VAT threshold) or more will need to file their tax online, and they will need to do this using the compatible software.
What is the Theory Behind it all?
Her Majesty’s Revenue and Customs (HMRC) has decided that the Making Tax Digital Initiative will be a lot easier for businesses in the UK as it will help them keep up to date with their books. If you run a small VAT-registered business that makes £85,000 or more a year, you’ll have to use the software that HMRC want you to use and you will have to do it before the dreaded deadline.
What does This Mean for Small Businesses?
The Digital Initiative could mean that you have to replace your existing processes with this new approach. If you are currently using accounting software you may find the change quite straightforward, but if you are using relatively old software it may not be compatible.
This may well mean that you will have to buy new accounting software that is compatible with HMRC’s or simply wait and see what their compatible software is like and then learn how you can go about using it.
If you are running a small business, chances are you have a lot of job roles. Not only are you likely to deal with the accounts, but you are probably involved in ordering, sales, and other aspects of the business, too.
When HMRC’s new Digital Initiative comes along, you may have to set your other jobs to one side so you can concentrate on their new software and learn how to use it. This could potentially take up a lot of your time, especially if the software is not that easy to use. HMRC is not well-known for its easy-to-use websites, and if you have ever filed a tax return online you will know it is anything but a walk in the park. However, we can all keep our fingers crossed and hope that this new software is easy to use and does not create any user-related headaches.
Approaching the VAT Threshold
If your business is approaching the VAT threshold you may want to speak to an accountant so you can be prepared just in case. You should ideally consider finding out as much as you can about Making Tax Digital so that you know exactly what needs to be done, and when.
If your business is a new one or it is growing you may be affected by the Making Tax Digital Initiative. Therefore, you may need to project your income for the rest of the business period and see if your business qualifies for the Initiative.
Why are HMRC Implementing the Initiative?
HMRC are reportedly implementing the Initiative so that it is easier for businesses to keep on top of their accounts. With a view to being one of the most advanced tax administrations on Earth, HMRC insists that Making Tax Digital will be more effective, more efficient, and help business to remain compliant.
From Annually to Quarterly
We small business owners are currently used to filling in our VAT returns once a year. However, HMRC is changing this and as of April 2019, we will have to fill in our VAT returns every three months. With more than 1 million small businesses in the UK, it is thought that the Making Tax Digital Initiative will have a large impact on the business owners and their accountants.
How to Prepare Yourself for Making Tax Digital?
Preparing yourself for this change is key. Ensuring you have the right software is a good start as you will need to ensure it can communicate with HMRC and its computers.
For those of you who currently use desktop accounting programmes, you may find that you need to update the software so it can be used in conjunction with HMRC. If you have relatively old accounting software that cannot be updated you may need to start using modern software that can be used when the changes are implemented.
What is the Cost of the Changes?
We all know how important it is to keep our costs as low as we can. Unfortunately, some of us may have to purchase new software that could be quite pricey if you purchase it outright. However, paying for a monthly subscription may be the only way forward. HMRC may well be telling us that their changes are better for us, but they may also be more expensive for us small business owners, too.
Whether HMRC’s Making Tax Digital Initiative runs as smoothly and as effectively as they say it will remain to be seen. With plans for all businesses to join the Digital Initiative at a later date, the sooner we all prepare ourselves for the change, the easier the transition will be.