Digital Tax

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How Does HMRC’s New Electronic Tax System Affect Your Business?

With the near-ubiquitous nature of digital systems, it almost feels as if Her Majesty’s Revenue and Customs is late to the party. However, the changeover to digital tax returns that the government is currently rolling out is causing waves through the business world. Many small companies not yet ready to move over to a paperless model and larger companies now have only a few months left to make any necessary changes to their accounting systems.

What is Making Tax Digital (MTD)?

From the government’s perspective, the new system is filled with advantages.

HMRC have defined four ‘foundations’ that focus on the benefits of a new digital tax era. They believe that bringing tax accounting to the 21st century with online systems will increase accuracy and give a more transparent level of control to the business.  Tax accounting should become as easy to navigate and understand as familiar online banking.

Their foundations are:

Better use of information

Filling in the same information on multiple forms has been par for the course for many years, with tax systems infamous for their unwieldy levels of data duplication and systems which fail to properly integrate information.

With the new digital tax system, HMRC will be able to cross-populate data from disparate systems. This will mean a substantial downturn in duplicated data and a much higher level of accuracy. Errors where information was incorrectly copied will be all-but eliminated and information already in existence from one system across the organisation can be simply utilised by the tax system without any need for manual interaction.

This crossover of data means that laborious cross-referencing issues that have held up previous tax and VAT returns no longer need to be researched by digging through reams of paperwork but will be entered automatically by a system that has immediate access to the figures.

Tax in real time

One of the bigger side-effects of the change will be the availability of the tax account in real time. Previous tax accounting has always had an air of mystery to it, where estimates and guesswork led to difficult planning for cashflow.

With the new system, accountants and bookkeepers will be able to get immediate access to all tax account information. This will allow them to plan payments of upcoming tax bills or check for any errors as part of their regular workload.

Not only does this add greater accuracy to tax accounting, but will also remove much of the stress and worry associated with tax office compliance.

A single financial account

Bringing all the tax information into a single financial account will enable businesses to see their liabilities and entitlements in the same place.  This gives an interface that is much more in line with modern user experiences.

Roll-out of the system is expected to be complete by 2020. Both businesses and individuals will then be able to see their full tax account online, in a similar way to other online banking.

Interacting digitally with customers

By moving to a fully digital system, HMRC hope to streamline response times between accounting professionals and themselves.

Much of the necessary information will be made available from the online portal, with interactive help systems to aid interactions with the tax office. Online chat assistants run by up-to-date artificial intelligence systems are also promised. This will give a 24/7 feel to HMRC that has previously been impossible.

What is the MTD timeline?

Beginning with companies that cross the VAT threshold of £85,000, Making Tax Digital for businesses rolls out in April 2019. At that point, any companies who submit a VAT return will use the new government digital tax initiative.

For smaller businesses and those who previously filled out a self-employed tax return, the change over to the new system takes place a year later, in April 2020.

Does MTD mark the end of yearly tax returns?

With a more direct connection between your own accounts and HMRC, Making Tax Digital will see an end to the yearly tax return. Instead, four automatic updates per year will replace the old time-consuming bureaucratic system.

This will be done on a software level and require no significant time investment on the part of the business once it is all properly set up.

Will I need new accounting software to interact with the MTD system?

Most currently-used accounting systems are fully compatible with the new Making Tax Digital initiative, although it does put an end to any paper accounting! Even a simple spreadsheet will be able to provide the data needed.

One of the key components to the new system is ensuring that you provide all the information that HMRC are asking for. This may mean your accounting going forward is more in-depth than it previously needed to be.

HMRC are providing a direct Application Programming Interface (API) for businesses to be able to interact seamlessly with the new MTD system. This will allow your data to be transferred automatically from your accounting software to their records without the need for any copying or re-entering of information.

Of course, your accountant will already be preparing for the changeover and will be able to advise you on anything you need to implement in your business. Speak to them about Making Tax Digital and make sure you are ready when it comes into force.

A full list of all known compatible software is available here on the government’s website.

An opportunity for asset review

The next few years look positive, as HMRC catch up with the online financial model that drives business today. As you move to bring your company in line with the MTD process, take the opportunity to review your business finance and maximise your tax efficiency, with the products and services that form the backbone of your organisation.

Give us a call at Maxxia today on 0845 643 1319 or via email to see how we can help you with our full range of asset finance options.

January 23rd, 2019|Categories: Accounting, Asset Finance|

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