2017 will see the biggest shake-up in tax return reporting since the introduction of self-assessment as the government finally publishes proposals to make SMEs submit their quarterly tax return online. The measure is set to be clarified by government in 2017 as part of its programme to ensure that all tax matters become paperless and move online by 2020.
Making Tax Digital will have a significant impact on the SME community as they will no longer be able to leave tax matters to the end of the financial year. Worryingly, many do not know about the proposals and have not started to make plans to mitigate the impact on their businesses.
The proposals will see quarterly online reporting in addition to year-end tax return declaration as well as record maintenance via HMRC-compatible software only.
Companies will now be able to provide voluntary pay as you go tax payments rather than twice a year, with exemption for those earning less than £10,000.
The changes will be phased in from April 2018 with Income Tax and NIC for large businesses going digital, followed by Income Tax and NIC for small businesses, concluding with Corporation Tax in 2020.
This leaves SMEs with just one year to make changes to the way of accounting. Throughout 2017 they will need to look at how they can transition from paper-based record keeping to the mandated digital system by 2018 or risk facing fines from HMRC.
The latest solution available helps the move to online is cloud based accounting from companies such as Sage, Xero and Quick-books, where users are no longer tied to one device and have the flexibility to access and update information from anywhere.
The benefits of cloud accounting include reduced manual data entry using automatic bank feeds, auto analysis of transactions and invoice scanning and live up-to-date information and real-time financial reporting.
Businesses will now be able to log their details online, eliminating the paper work and simplifying the end of year process. This will also provide better use of an accountants time with direct access to book keeping, reducing errors and potential for incorrect and finable returns. Information will also be backed up for future reference and peace of mind.
However, moving from traditional accounting methods are likely to face widespread resistance from SMEs as fears of security and a new set of skills will be required, including shifting company data from own server to cloud based systems, up-skilling employees to work online through web based systems including online banking and drop box or other cloud-based file servers.
Owners must have an aptitude and openness to change using freely available resources to support management based on the provision of more timely and purposeful financially based information.
The Making Tax Digital programme will also affect the way accountants support their clients with the disappearance of ‘shoebox accounting’. Accountants will have to offer cloud accounting based services and educate current clients on how they need to change the way they work. Experience in emerging cloud accounting technology will be crucial.
It also offers clients the opportunity to review the way their finance function works as less manual book keeping will be required due to automation. Clients will be less dependent on in-house skills and could look to reduce costs further by outsourcing the finance function to experts who can add value more cost effectively.
Joseph Robinson, managing partner of Robinsons, says, ‘2017 will see a profound shift in the way tax returns are handled in the UK and SMEs need to start planning now as the changes are mandatory and face heavy HMRC fines.
‘They must contact their accountant and discuss how to Make their Tax Digital in 2017. Cloud based accounting is one option and has the added benefit of automating the accounting process and freeing up valuable resources to be spent elsewhere.’
Source: Owen Gough - Smallbusiness.co.uk