Making Tax Digital - should you be concerned?

Making Tax Digital - should you be concerned?

Making Tax Digital is a government plan to update HMRC with financial information four times a year instead of simply at the year end. This is set to affect about 1.6 million companies, 2.4 million self-employed and 900,000 residential landlords.

The government had wanted businesses to comply by April 2018. HMRC has relaxed the timetable for these proposals under considerable pressure from all over. So that’s a relief as the timing appeared very rushed. The new timetable will mean that businesses above the VAT threshold of £85,000 will need to keep digital records from 2019 but initially only for VAT purposes. Businesses will not need to keep digital records or update HMRC quarterly for other taxes until at least 2020. Businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system - the government said this will affect about 3.1 million businesses.

When eventually MTD is introduced the actual reporting should not be time-consuming, assuming the business is using software which will be adapted, otherwise this will impose a significant and costly extra requirement which will be especially noticed by micro-businesses. It also begs the question as to what information is going to be reported quarterly and what HMRC will do with this information. The quality and meaning of quarterly information for HMRC is to our mind a bit of a mystery at the moment. Currently the only profit information which is formally reported is at the year end which is usually after significant checking and adjustment by the external accountants.  Will this mean that such attention is required quarterly or will it mean that such information is of limited use? Will it force businesses to use accounting software? Will HMRC have access to fully detailed accounting records rather than just the formal statutory accounts summary? Will it encourage more income to be declared or discovered or less costs to be claimed? Time will tell us what the consequences will be.

Anthony Pilkington

Managing Director

BookCheck Ltd

The Big Challenger to Sage and Xero

Do you know the big challenger to both Sage and Xero? It’s something called Paper.

Over 1 million businesses, about a quarter of all, use this method for their ‘accounting’. By paper I don’t mean Excel, I mean the real thing.

With half using Excel that leaves only about 30% using proper accounting software. So HMRC’s Making Tax Digital, starting in 2018 up to 2021, is in for a challenge, or perhaps it’s the business owner with the problem as MTD is hardly optional.

So should small businesses use accounting software?

It’s worth considering. The key benefits are a discipline, security, easier VAT returns and a lower cost year end. Plus hopefully some really useful information about how the business is performing, reported now, not 12 months late. Measure to Improve is a good maxim but first you have to Measure.

Paper is insecure, not confidential and easy to lose – not to mention time consuming, basic and not much use. Whilst Excel is better in many respects it can easily suffer from mistakes, like a row missed off in the additions. We’ve all done this at least once and it can be very embarrassing. We saw one recently where this mistake transformed the results massively and had badly misled the company, crucially delaying it from taking prompt corrective action to a major problem. Sadly that is still the one glaring fault with the overwise great Excel software – it’s not smart enough to warn you. An accounting system will avoid such a risk.

Nowadays software such as Xero is designed for users who know little or nothing about accounting - that’s principally why it’s been so successful and way ahead of Sage. Our experience is that it’s understood, easy, even sexy to use. Worth a look.

This entry was posted in Accounting by Caroline