Even if they won’t admit it publicly, tax season is the bane of every business’s existence. Granted, taxation is way simpler when online accounting software is involved but, let’s face it, gathering all the necessary data from the last business year and then filing that many reports to the corresponding governmental agencies is the polar opposite of fun. And if that’s not enough, most of the process still has to be done on paper, which is not only ridiculous considering how nowadays almost everything is performed online but can also lead to many mistakes, and correcting those can be quite a hassle for businesses and tax agencies alike. However, this all is about to change in the UK with the introduction of Making Tax Digital, which intends to help individuals and businesses streamline their taxation by introducing a new tax reporting schedule as well as a fully online reporting system.
What You Need to Know About Making Tax Digital
Set to rollout in April 2019 and scheduled for full implementation the following year, Making Tax Digital is an initiative of the tax department of the UK Government, the HMRC, created to help in “modernizing the tax system to make it more effective, more efficient and easier for customers to comply”. The purpose of the new system is to provide individuals and UK-based businesses with their respective digital tax accounts – with real-time support and advice by HMRC agents – where they can review tax reports created by the department and make corrections to the data if needed.
At first this doesn’t sound too revolutionary but, actually, this is just scratching the surface. The most important change to the current taxation system is that certain business information – some bank data and information from other governmental departments – is also forwarded onto the HMRC that, upon processing it, can update businesses’ tax data in real time or as close as possible to it. This – and the fact that you’ll be required to verify the collected data and provide any additional information on a more frequent basis – will lead to more accurate tax reports without the need to spend more time on paperwork.
But businesses will be able to do more than just review their quarterly tax reports in their HMRC accounts; since these accounts are meant to be unified communications channels between taxpayers and the HMRC, businesses will also be able to perform other tasks, from claiming tax refunds to applying for other benefits that they are eligible for.
The Dreaded Deadlines
Although the implementation of the new tax system has been continuously rescheduled over the last few years, as of April 2019 there will be no more excuses. From then on, businesses and sole proprietors with a turnover of above the minimum VAT threshold of £10,000 per year are obliged to create their VAT reports digitally and then submit them to the HMRC via their online tax accounts on a quarterly basis.
In addition to that, from April 2020 businesses will be asked to keep digital records for other taxes, too – although it’s worth noting that until the HMRC can confirm that the new VAT reporting system works perfectly, neither will the date be set in stone nor the nature of the eligible taxes revealed.
How to Prepare for Making Tax Digitally
The most important task that every business has to perform is to find a solution with which they not only can create the necessary reports but also file them to their HMRC accounts. And since the key word here is ‘online’, the most logical thing business owners can do is to opt for an online accounting program like Sage, FreeAgent, KashFlow, or Liquid Accounts.
Aside from the fact that these programs are equipped with many enterprise-grade features – including the automated creation of various business reports that showcase the accurate amount of taxes owed – they are also capable of integrating with other cloud-based solutions. And knowing that convenience is of utmost importance for online accounting service providers, users based in the UK will have no issues filing their tax reports with the HMRC with a single click.
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