The Digital Tax Clock is Ticking. It’s Time to Wake Up!
It’s only just over a year to go until one of the biggest changes to the UK tax system begins to come into effect. Will your business be ready?
Making Tax Digital is the government’s plan to transform tax administration, bringing the system in line with what businesses and individuals expect from other online service providers.
The digital switch will result in more timely and accurate record keeping, and help HMRC reduce annual revenue losses of over £9 billion due to errors and mistakes in reporting.
Compliance with the reforms will require many business owners to make fundamental changes to the way they manage their business accounts. First to be impacted will be VAT registered businesses – including self-employed individuals and landlords, who from April 2019 will need to keep digital records, and provide their VAT return information through Making Tax Digital compatible software.
What do you need to do to be ready?
If you’re a VAT registered business and you don’t yet have an electronic accounting system, you need to be making plans to transition to a digital solution now. The ideal time to make the switch is at the start of your new financial year.
If, like many businesses, your financial year runs parallel to the tax year and finishes on 31st March or 5th April, you only have a matter of weeks to decide if you’re going to throw out your spreadsheets or ledgers and introduce an online system for the start of your new financial year.
Even if you decide you’re going to delay things until the start of the 2019-20 tax year – or if your new financial year starts after March 2018, you’ll still need to act and plan your transaction now to make sure you’re ready, because either way, by April 2019, your accounts will have to be digital!
3 steps to a smooth transition
- Choose an online accounting solution
The first thing you need to do is decide which of the many online accounting solutions is right for your business. Desktop or cloud-based, there are plenty of options to choose from, each with different features, benefits – and price points.
Factors you’ll need to consider will include:
- Is pricing based on a flat rate subscription fee, or will you be charged per user?
- Will the volume of transactions affect what you’ll be charged?
- Can the solution integrate with your business bank account to reduce admin and streamline your record-keeping?
- How will the solution assist you in preparing and filing your quarterly VAT return?
- Does the system make it easy to generate management reports so you can see how your business is doing whenever you want to?
- Check your accountant is digitally-ready & able to support your preferred accounting solution
If you’re not yet working digitally, it’s possible your accountant isn’t either. There are still some traditional practices out there that haven’t yet fully embraced working in the digital environment.
You need to have a conversation with your accountant to understand their digital capabilities, and to make sure they can work with the online accounting solution you’re planning to use. If you’re not happy with what you hear, it’s far better to find out now while there’s still time to engage a more tech-savvy accounting partner ahead of the new system going live.
- Plan your transition
Alongside identifying the software and the accountant you’re going to work with, you’ll need to plan how and when your business is going to transition to digital accounting. As already discussed, to make the transition process as smooth as possible, your plan should ideally work in conjunction with your financial year end, and you’ll have to have your new system tested and ready to implement from the first day of your new financial year.
A couple of important points to note
- Businesses de-registering for VAT after April 2019 will still be required to remain in the Making Tax Digital scheme.
- Businesses using the VAT Cash Accounting Scheme (i.e. paying or claiming VAT when payments are made or received, rather than when they’re reported) need to approach Making Tax Digital with extra caution. Inca has been called in to help a number of businesses on the scheme where transition to a digital system was not implemented correctly, causing serious problems and incurring additional costs for the owner.
Making the change to digital accounting is something you are going to have to do, and leaving implementation to the last moment is likely to put unnecessary pressure on you and your business.
Inca can help you to decide which online solution is best for your business, provide you with advice and bespoke training, and assist you in making a timely and stress-free transition. We are able to support a wide range of HMRC approved digital accounting products, and have access to discounted subscriptions for ClearBooks and Xero.
Take the first step to Making Tax Digital. Call us now on 0123 586 8888!