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No Holiday In Sight With Digital Tax

by ROSS MCCONNELL on MAY 20, 2019

You might be feeling totally on top of making tax digital for VAT, which affected all businesses with a taxable turnover above £85,000 from 1 April 2019.

Perhaps you’ve already submitted your first successful online return?

If so, congratulations! But don’t relax just yet.

HMRC has now announced that landlords with furnished holiday lets will be the next target audience to participate in a digital trial – this time for income tax, a move that had been signposted for launch in 2021. But now, more than one million businesses could join in this next test of the Making Tax Digital system, and start to create digital income tax accounts in the 2019-20 tax year.

The good news is that participation, for now, is voluntary. But as the saying goes, ‘there’s no smoke without fire,’ and it’s highly likely that this pilot will lead to an obligation for all businesses to report digitally each quarter, eventually.

If you’re inclined to take part in the trial then there will be advantages. The system will mean you can view an estimate of your income tax bill at any time, helping you plan your cash flow; and you’ll also get greater assistance from HMRC in getting the system set up, which is always a plus; not to mention the extra lead time to get yourself familiar with the system before it inevitably becomes compulsory for everyone.

So what’s the ask?

HMRC will get participating businesses to use specialist software to keep income and expense records digitally and then submit returns every three months, plus a final annual report. In response participants will receive an estimated tax calculation based on the information they have provided to help them budget for their tax.

The deadline for payment of any tax you owe will remain the same.

What’s the catch?

According to the Federation of Small Businesses, the necessary software will cost an average business £564 in the first year, and acquiring the specialist software will be down to each participant. (HMRC has a list of compatible software)

There may also be on-going charges for using the system, based on your specific requirements.

Why this drive to making tax digital?

There’s no doubt that going digital does make it easier to manage business finances. Millions of us are already banking and paying bills online, so going digital with your

business records and taxes is surely the natural next step, giving your business more control and more precise and accurate financial information to help plan financially.

According to HMRC, if they can cut out avoidable mistakes on tax returns by using the new software, it could generate £9 billion for the Treasury from lost taxes.

HMRC are getting the independent software developers to add further functionality so that landlords will be able to track and send information about their business/rental income, including things like employment income, bank and building society interest, dividends, gift aid etc.

So in future we can all expect a richer experience as MTD continues to develop.

If you want to participate and you’re already a client, give us a call. If you’re not a client but have questions about the implications of Making Tax Digital for your business feel free to get in touch. We’re here to help.

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