Time is fast running out for UK businesses to make the digital accounting change
Don’t you just love the UK Government? UK businesses are still dealing with the huge cost and upheaval from the Automatic Enrolment regime and now we have another one to deal with. You may have already heard about this new change as we have been pre-warning our clients that the Government had another major upheaval planned for UK businesses from April 2018, i.e. the roll out of digital tax that they have very recently confirmed will now be launched in just over 14 months’ time for some business entities.
They call it ‘Making Tax Digital’ (‘MTD’) and on 31 January 2017 HMRC finally published its policy paper on MTD following the consultation process that had been held after the release of HMRC’s six MTD consultation papers in August 2016. Despite a number of concerns that had been raised during the consultation process about MTD by both the accounting profession and business representatives (concerns that were also mirrored in the recent Treasury Select Committee’s report on MTD of 14 January 2017 where they questioned whether HMRC will be equipped to deliver MTD to its “over-ambitious” original schedule), HMRC have announced that legislation on MTD will be included in the Finance Bill 2017 with a current planned commencement date of April 2018.
Despite the above very recent confirmation that MTD is going to happen in just under 14 months’ time for unincorporated businesses, disappointingly we still do not yet know with 100% certainty exactly how it will work, which size of business entity will be caught up in it and when the actual implementation dates for MTD will be for certain small businesses. For example, HMRC’s policy statement of 31 January 2017 notes that on the issue of initial exemption threshold (ie whether certain businesses with a turnover below a certain level would be exempt) and/or whether implementation may be delayed for some small business:
“Given the range of views expressed on this matter from respondents to the consultation, the government will take more time to consider these issues alongside the fiscal impacts. Final decisions will be made before legislation is laid later this year.”
Despite this continued delay in confirmed facts, here is the essence of what HMRC are currently proposing in their policy statement of 31 January 2017:
The current proposal is that MTD will apply to businesses with annual turnover above £10,000 (which is of course most businesses in the UK). However, it is hoped that the above mentioned further “government consideration” may result in this turnover level being increased to at least the VAT registration limit (which is currently £83,000 per annum), thereby moving some businesses out of MTD requirements.
MTD effectively means that businesses will be required to digitally send summary financial data to HMRC every quarter (this is why their accounting records will need to be digital).
Although the policy statement of 31 January 2017 has now confirmed a concession that some businesses will be able to continue to use spreadsheets for financial record keeping, MTD appears likely to still require even these businesses to combine their spreadsheets with software that will then allow the quarterly digital disclosure of accounting information required by MTD. In other words starting from as soon as April 2018, a substantial number of UK businesses will be forced to change the way they prepare their accounting records.
Although HMRC’s policy statement of 31 January 2017 indicates that “free software will be made available to businesses with the most straightforward affairs” this will clearly exclude the vast majority of UK businesses and so you will have to sort out your own cloud accounting solution.
Although there may be a few very limited exemptions to such requirements, MTD will result in a substantial number of UK businesses now moving to the use of a digital accounting software package (such as QuickBooks Online or Xero for their accounting system). You may indeed have recently seen QuickBooks advertising their cloud accounting software on prime-time terrestrial TV. The good news for you is that here at Hilton Sharp & Clarke we have been researching and preparing for this change to cloud accounting software for some time and are fully certified in these cloud accounting software packages. We are, therefore, both able to advise you (and importantly assist you if that is necessary) as you move away from your current desktop accounting system, excel spreadsheets or even for some clients, a traditional manual cashbook, towards a digitally compliant accounting package.
Although this change in accounting software is being forced on UK businesses by MTD, we at HSC actually see this new accounting software as providing businesses with substantial benefits (eg real-time accounting information) that will far outweigh the pain and cost that businesses may fear they will face as a result of this forced change. If you would like to receive a free copy of HSC’s ebook setting out the benefits of a cloud accounting software system and our 13 step guide to setting up such a system then click here to download it.
And finally, we repeat again that MTD is still currently planned to start in April 2018 for unincorporated businesses, which isn’t very far away! We then have limited companies joining MTD from April 2020 so that by April 2020 it is planned that all businesses and individual taxpayers (with very few exceptions) 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. For the vast majority, there will be no need to fill in an annual tax return.
That’s a very quick overview. If you want more detail about HMRC’s current MTD plans then you can read about it here on the Government’s website (although be warned it doesn’t make very exciting reading!).
So what does this mean for you?
If you’re not sure what a cloud accounting system is then think of it as the difference between traditional banking and online banking. When online banking first came in there was resistance and worry over security. Now most people use online banking and it simply makes our lives easier. We can transfer money far quicker than writing out cheques and posting them, we can get instant information on our bank balance whenever we need to and from numerous devices from anywhere in the world that has an internet connection.
Here at HSC we believe that a cloud accounting system has many advantages over more traditional accounting systems (manual books and records, spreadsheets and desktop systems such as Sage Line 50). We also believe that with recent advances in software technology now is actually the ideal time to change accounting software to the cloud and that we would be advising our clients to make that switch even if the UK government was not forcing you to do so over the next few years in any event.
So give us a call and find out about the benefits of cloud accounting
HSC specializes in cloud accounting systems and will be contacting you in due course as we find out over the coming months the final confirmed details on MTD ahead of the 2017 Finance Bill. We will be here to advise and assist you throughout the whole process when your business is forced to move to new accounting software by MTD so please don’t worry about this forced change.
HSC can work with you to implement a new digital accounting system or even maintain such a system for you if that would be helpful. However, if you have any specific questions now about how MTD is likely to impact your business or would simply like to start the move to a cloud accounting software as soon as possible then please feel free to get in contact with your usual HSC contact or Mark Tickel.
Main image by fancycrave1