The tax system is undergoing its biggest overhaul since self-assessment was introduced in 1996 by making tax digital. By 2020, businesses and individual tax payers will be able to register, file and update their information at any time of the day or night to suit them, without the need to fill in the annual tax return. The new rules will make it more effective, efficient and easier for taxpayers, and will apply whether you have a trading business, or are a property landlord.
How will these changes affect you as a business owner?
The changes will start with sole traders and partnerships, and property landlords whose total income, or turnover is greater than £85,000.
The limit is for all businesses you run – so two businesses with income or turnover under £85k which total £90k between them, means you’re in!
These businesses have to start keeping records suitable for digital submission as early as April 2018. Property landlords and businesses with April or May accounts dates will be first to be affected.
Smaller unincorporated businesses and companies join later.
It means businesses will need to start using digital software and apps to keep records up-to-date - the days of scribbling in notepads and hoping for the best are numbered.
HMRC will now require summary reports quarterly and still require a form of self-assessment tax return annually. Tax payment dates stay as they are for now.
What can you do to prepare for these changes?
It’s worth checking with your accountant that the administrative side of your finances are set up to adapt to these changes to digital tax.
The first thing to ensure is that your records are on a computer, and if not, to get into the habit of recording information in this way as soon as possible.
If you have an accountant doing this for you then speak with them early so they have time to help you, rather than leaving things to the last minute. Once the information is all digital, your accountant can continue to report on your behalf.
Another way you can save on time and cost is to use software that is compatible between yourself, your accountant and HMRC but the important thing is to be prepared because this is coming into force very soon.