Making Tax Digital: What every small business needs to know
Alexander Meynell, Commercial Director at CreDec, examines what last week’s announcements from HMRC on Making Tax Digital (MTD) may mean for small businesses.
HMRC published its Making Tax Digital consultation feedback on 31 January, revealing some details on what this transformation will look like - but also raising many questions.
What does MTD mean for small businesses, how they will cope with the changes, and how will it affect reporting with the requirement to ensure any data fed to HMRC in their role as a ‘third party provider’ is completely accurate?
How will it work?
HMRC has announced that it plans to push on with its introduction of Making Tax Digital for most businesses, the self-employed and landlords from April 2018. Despite concerns raised by respondents to its six consultations and the Treasury Select Committee, HMRC has not adjusted their schedule for the roll-out, which it aims to complete by 2020.
The Federation of Small Businesses commented in a recent press release that the timetable for MTDfB is too short, and businesses “still do not know what they will face”, calling for a delay to the roll-out and a rethink to the proposals.
The move puts pressure on both HMRC and businesses: HMRC must speedily explain exactly how MTDfB is going to work in practice and businesses need to plan how they will adjust to the requirement to report to HMRC more often.
Lack of technology ready products
One aspect of MTDfB which was clarified in the consultation responses is that businesses will be required to update HMRC quarterly, and that the year-end update will be required by the earlier of the 31st of January or ten months after the end of the period.
As there are no MTDfB-ready software products available to the market yet, the timescale for businesses to choose and learn a new product, train staff and adapt to more frequent reporting is likely to be very tight. Although keeping records in spreadsheets will still be allowed under MTDfB, these will have to be used in conjunction with some kind of software or app to provide updates to HMRC.
Stay ahead of the game to mitigate the MTD impact
So what can be done to mitigate the impact of MTDfB on small businesses? If HMRC does not change its timescale for reporting (as it seems very unlikely to do now), then businesses must look at ways to work within the new rules.
In HMRC’s bold digital future where data is everything, businesses must be one step ahead Alexander Meynell, Commercial Director, CreDec
In line with PAYE reporting, firms must move towards a more ‘real-time’ way of keeping on top of their tax affairs, so that they are not faced with a deadline crunch every quarter.
Evaluating whether record keeping is a high enough priority in the business, whether that is outsourced to an agent or kept internal, can only be a good idea, and the sooner any weaknesses are identified the quicker issues can be remedied. Checking that regular business processes like payroll administration are also accurate will form part of that confidence.
Ensuring that accounts data held by the business is truly accurate will also help make the transition to digital easier for small businesses because they will be able to check that the information with which HMRC pre-populates their online tax account is right.
Having confidence in their own records so that they can challenge HMRC if the tax account isn’t right will enable SMEs to take control and correct errors before they can cause problems, holding HMRC to account for their data processing.
In HMRC’s bold digital future where data is everything, businesses must be one step ahead in the accuracy game to make sure they are not penalised and have the information on their side when penalties eventually kick in.
CreDec Direct BACS services
Working with ICAS, and as the appointed partner of all the UK’s leading professional accountancy associations, CreDec’s direct BACS services have the lowest BACS access cost for practice payroll. A BACS payment services allows practice payroll to prove not only RTI compliance but the correct operation of PAYE to both HMRC and clients alike, providing evidence to contest unwarranted HMRC compliance action.
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About the company
Alexander Meynell is Commercial Director at CreDec. CreDec provides credit management services to the UK small and medium enterprise market. Our credit management services are based on our payment processing capabilities. We give access to leading credit management processes, payment systems and networks without any of the associated capital expense or costs of ownership.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.