Reporting taxes just once a year is on its way out. Businesses will need to start making quarterly tax submissions from 2019. Although it may mean you have to make changes, it can actually help streamline tax and accounting.
Making tax digital summary
In a bid to simplify tax reporting, Her Majesty’s Revenue & Customs (HMRC) is moving away from only filing taxes annually. Instead, businesses will submit tax information – such as revenue and expenses – every three months.
For this reason, businesses will be issued with a digital tax account. Some of your business information will flow automatically into your digital account, including:
- some bank data
- information from other government departments
That makes things simpler. However, you’ll be required to check this data every three months, and provide any additional information that HMRC requires. Businesses who submit quarterly VAT reports will already be familiar with this way of working.
When will HMRC make tax digital for businesses?
Making tax digital will be introduced in stages.
- From April 2019, businesses with a turnover above the VAT threshold will have to keep digital records for VAT purposes.
- From 2020, businesses may be asked to keep digital records and update HMRC quarterly for other taxes.
The good news
One of the main advantages of making tax digital for businesses is that it will lessen the chaos surrounding annual tax returns. Here’s a brief summary of making tax digital benefits:
- De-stressing tax
- You’ll submit tax data every three months, which means you can forget about cramming twelve months of work at the end of your financial year.
- Far less paperwork
- Computer software will make an automatic record of money coming into and going out of your business. You (or your tax advisor) will just check the data and update it to HMRC each quarter.
- Fewer surprises
- Because tax will be calculated quarterly, there’s far less chance of a big bill building up. You’ll find out what your tax liability is every few months so nothing gets out of hand.
- More chances of lowering your bill through tax planning
- Businesses that keep regular tabs on the tax they owe can make strategic decisions to lower their bill. You might make more retirement contributions or reinvest in the business, for example.
How come I don’t have to do paperwork?
Electronic data about your business will go directly to HMRC from banks, building societies, and other government departments. You won’t need to manually process this information for them. That’s perhaps the biggest benefit of making tax digital for businesses. If you set up a smart tax and accounting system, you’ll have far less work to do.
The bad news
There’s not much wrong with gaining greater visibility of your tax situation. For some businesses, however, there will be changes to manage. Here’s a summary of the issues you may have with making tax digital:
- Compulsory use of technology
- By making tax digital for businesses, the HMRC requires you (or your tax advisor) to submit returns online, through either an HMRC app or online accounting software.
- More reporting deadlines
- While VAT returns were already submitted quarterly, income tax and corporation tax weren’t. After Making tax digital takes effect, however, the single annual filing for income tax and corporation tax will be supplemented by four quarterly reports.
- Loss of privacy
- You may not be comfortable that some of your electronic transactions will be visible to HMRC. But you’ll be able to review the data and fix mistakes before it’s submitted.
Will I need an accountant?
You don’t need an accountant for making tax digital. You can figure out your obligations and make your submissions on your own. However, a good accountant will make the transition much easier for you, because they will:
- know the HMRC plan for making tax digital (including the implementation schedule)
- be familiar with accounting software that simplifies making tax digital for businesses
An accountant will also be able to help you with tax planning – a strategy to help legally reduce the tax you pay.
If you already have an accountant
Making tax digital may mean you see your advisor more often because they’ll be doing quarterly reports. Those reports will typically be faster and easier to prepare than your old annual returns – so you'll have shorter, more frequent bursts of activity.
The regular contact will allow your accountant to learn your business better. Use the opportunity to get more advice from them. There are many services they can provide besides tax.
Do I have to get software?
If you want your business to work smarter and faster, cloud accounting software is a wise investment. Working in the cloud will give you a better overview of your finances, and improve collaboration with your team.
Accounting software shouldn’t be a chore to use
Small business accounting software that’s not available via the cloud can be tedious. Traditionally, it can suck up far too much of your business’ time and effort. This doesn't add value, and takes the fun out of being in business. Cloud software can save your company time and money.
So what is this thing called the cloud?
Think about when you use internet banking. Every time you access this data, you’re using the cloud. The cloud is a platform to make data and software accessible online anytime, anywhere, from any device. Your hard drive is no longer the central hub.
Problems with traditional accounting software
- The data in the system isn’t up to date and neither is the software.
- It only works on one computer and data bounces from place to place. For example, on a USB drive. This is not secure or reliable.
- Only one person has user access. Key people can't access financial and customer details.
- It's costly and complicated to keep backups (if done at all).
- It's expensive, difficult and time consuming to upgrade the software.
- Customer support is expensive and slow.
Why the cloud and accounting software are the perfect match
You can use cloud-based software from any device with an internet connection. Online accounting means small business owners stay connected to their data and their accountants. The software can integrate with a whole ecosystem of add-ons. It’s scalable, cost effective and easy to use.
In the cloud, there’s no need to install and run applications over a desktop computer. Instead, you pay for the software by monthly subscription.
Cloud security is world class
As a small business owner, you might be concerned about a cloud service provider storing your data. But the cloud is one of the most secure ways to store information. For example, using cloud software, if your laptop is stolen, no one can access your data unless they have a login to the online account. With cloud software, this is where the data lives – as opposed to on your hard drive.
In the event of a natural disaster or fire, being in the cloud means business productivity doesn’t need to be affected because there’s no downtime. All of your information is safely and securely stored off site. As long as you have access to any computer or mobile device connected to the internet, you’re back up and running.
In addition to this, if you invite users to view your data, you can control the level of access. This is much more secure than the old-fashioned way of emailing your files or sending out a USB stick with your data on it.
Cloud-based software companies ensure that the security and privacy of data about you and your organisation is always airtight. If you use online banking, then you’re already primed to use cloud accounting.
Five ways cloud software benefits your business
- You have a clear overview of your current financial position, in real-time.
- Multi-user access makes it easy to collaborate online with your team
- Automatic updates mean you can spend more time doing what you love.
- Everything is run online, so there’s nothing to install and everything is backed up automatically. Updates are free and instantly available.
- Upfront business costs are reduced – version upgrades, maintenance, system administration costs and server failures are no longer issues. Instead, they are managed by the cloud service provider.
Work smarter with accessible data in the cloud
The beauty of this software is the flexibility it gives you to run your business from work, home, or on the go. You can be confident that you have an up-to-date picture of how your business is doing, no matter where you are.
Software updates can be developed and delivered faster and more easily in the cloud. This means you don’t need to worry about installing the latest version and you’ll get access to new features instantly. With cloud accounting software, you have the option to run your business remotely, from anywhere in the world. And when data is fluid and accessible, the possibilities are endless.