As we move further into the digital age, so the way we pay tax will change. By 2020, the government will have committed to creating a fully digital tax system, revolutionising how our returns are sent to the HMRC.
Furthermore, tax returns and payments will now be sent every three months instead of the annual system we’re currently used to. Every individual and organisation will be affected by the changes, from self-employed tradesmen to multinational companies.
For business owners in the UK, you should understand how the digital tax regime and quarterly returns will affect your company. Here’s a quick insight into their implications, although professional advice should be sought if concerned about the changes.
How the Changes Will Work
Parts of the current tax return system can be complicated and at times unnecessary, particularly when informing the HMRC of details it should already know.
The digital makeover will automatically update your details and allow businesses to access their accounts via a computer or mobile device. In essence, they’re similar to how an online bank account will look, providing a real-time view of your tax affairs in one place.
Various bits of information, such as interest costs, loan fees or buy-to-let income, will be passed on automatically and used to calculate your tax payments. Likewise, any relevant information from pension providers, banks, employees and the HMRC itself will be automatically updated throughout the year.
Of course, this means there’ll be no monotonous paperwork or looming tax date to contend with – a blessing for many business owners who dislike being tied down with red tape.
Benefits of the Digital Overhaul
As business owners can view their current tax information at the click of a button, there’s increased visibility to how much tax is owed and thus how much can be reclaimed.
Various tax liabilities can be consolidated into a single payment and sent via a secure direct debit transfer. This helps companies keep on top of their liabilities instead of dealing with a potentially damaging lump sum in one go.
The notion of sending tax returns four times a year to the HMRC may become an administrative burden on businesses, especially smaller companies and sole-traders. However, despite the initial concerns, the government are keen on pointing out the ease of the new system.
An official statement issued by David Gauke MP, Financial Secretary to the Treasury, notes that:
“By 2020, businesses and individual taxpayers will be able to register, file, pay and update their information at any time of the day or night, and at any point in the year, to suit them… This will help them to plan their financial affairs with more certainty.”
As the new system is still being phased in, its full implications aren’t yet known. Although the changes won’t be fully enforced by 2020, now is the time for SMEs to start preparing. A professional accountancy firm can help with this and minimise the risk of incurring costly fines.
Also bear in mind that, even when digital returns are enforced, this won’t necessarily signal the end of the traditional accountant. This because businesses can grant authorised access to a tax agent to manage accounts on their behalf.
If you’re worried about the upcoming changes to tax returns, or you want to start preparing your business, get in touch today for a chat.
In the meantime, you may be interested in how you can currently avoid HMRC penalties and fines during self assessment time.