I am sure you have read a lot and heard much of the new proposed HM Revenue & Customs digital tax system doing away with the paper Tax Return and the filing of quarterly information onto your digital HM Revenue & Customs account.
I am afraid this is going to happen and will affect all businesses and individuals and those with buy-to-let properties and/or other sources of income above £10K per annum.
The downside of all of this is that the smaller traders will have to deal with digital accounting first i.e. all those below £83K per annum (the VAT threshold) probably commencing April 2018, though digital accounts will operate from early 2016. What will be required is quarterly updating of information to the tax payers digital account.
HM Revenue & Customs will get a lot of information from other sources e.g. payroll returns, Bank and Building Societies who will upload information direct into the tax payers HM Revenue & Customs digital account. The tax payer himself will be responsible for uploading accounting information, business information. If you have good quality accounting software like Quick Books, Sage or Xero, then there will be facilities within that software to upload to the HM Revenue & Customs digital account.
However, what is obvious is that you may well want your Agent, Accountant, to look over the information before you upload it, or indeed we will upload it for you. The benefits of a Cloud accounting based software package are even more obvious now. In due course Agents like ourselves will have access to your digital account but in the first instance this may be more difficult.
What has been recommended also is that there will be a lot of smart phone apps available, so if you do not want to go to the trouble of having accounting software a suitable app where you can copy information across on a regular basis may work for you, i.e. you go into a garage, you buy your diesel, you use your smart phone and it is scanned straight to the accounting app which then will be uploaded to the HM Revenue & Customs website quarterly!!
What of course will happen with this new system is that HM Revenue & Customs will have information available to it on a quarterly basis and will start collecting tax on a regular monthly basis! Even more need for us to review your figures before uploading. Almost certainly there will have to be an annual review where adjustments can be made. There will be a detrimental effect to your cash flow as tax will be required as it arises.
In 2019 VAT registered businesses come online and in 2020 Companies come online.
If you are a small business below the £83K threshold then a cash basis accounting system is obviously needed and you should really talk to us about whether to more to some sort of accounting software package or acquire a suitable smart phone app or something similar.
What we will be recommending to many clients is a move to a system where all the accounting data is send to us on a monthly basis and we will update this ourselves on our own software ready for the quarterly updating. We will write to you about this in due course.
The days of the paper bag job will go. It should be possible to download from your business Bank account copy statements either onto the accounting software or to your smart phone app. If all your transactions are kept in a personal Bank account then you may well have to consider opening a business Bank account or move to a system of supplying us with the information on a monthly basis.
I hope this helps.