Partnerships, sole trades and anyone with a rental property: this will affect you by April 2018. There is not long to prepare!
The number of changes made to the UK tax system over the last six years have been unprecedented. The sheer speed of change has been hard for many practice owners to keep up with. Each Budget and Autumn Statement has caused us a certain amount of dread as to what sweeping changes might come in to place overnight.
In the March 2015 budget George Osborne announced that he was intending to “make tax digital”, meaning that the year-end tax return would become less of a pain as it would be prepopulated with as much information as possible. Bank Interest and Employment Earnings were mentioned as the kind of information that would no longer require hours of your time digging through paperwork to check to give to your accountant.
But there was another mention: Your Business Income
The rise of the quarterly ‘tax return’
How could a tax return be prepopulated with your businesses’ income? The answer is due to come in 2018 where unincorporated businesses and landlords will be expected to report financial information, similar to a profit and loss statement, to HMRC every 3 months.
Some are claiming that this is the end of the annual tax return but it will be the rise of the quarterly tax return for small businesses. These implications mean that your bookkeeping will need to be correct for submission to HMRC via an online link every three months. For now, HMRC are saying that year end tax returns are still required and should be prepared separately to the quarterly submissions.
Traditionally at the year end it is our job as accountants to, first, make sure the year accounts meet the required rules for being accurate and show a true and fair picture of how the practice has done in the year. The second task is to make sure that the tax treatment is right and ultimately as efficient as possible for you. Sometimes the year end accounts can be very different to your management accounts. Therefore, if the quarterly submissions are not reviewed they could tell a very different story to the tax efficient yearend figures. If this is the case, HMRC could smell a rat.
HMRC won’t tell us what providers they are working with but it appears to me that this will be a big drive for the likes of Sage and QuickBooks to get their users on “the cloud” and using the online, monthly subscription versions of their packages. There are likely to be options for software that aren’t cloud based as well.
However, with or without the push from the software providers, it makes sense from a professional point of view to move to the cloud.
With the financial information needing to be reviewed and submitted to HMRC so much quicker, a cloud based solution will help your accountant advise you with greater ease each quarter to make sure you file the information with HMRC correctly.
The days of manual records, excel spreadsheets and standalone software look to be coming to an end! The word from HMRC is that spreadsheets and the like will not interface with their new systems meaning a switch to a software based solution will be a necessity, rather than a choice.
Prepare yourself now
I wouldn’t advise anyone to send information to HMRC without having had a good review of it first, and so my advice is to prepare for the change now. Get practiced in having this data to hand. You never know, it may actually help you to get a handle on the important figures, and help in making the big decisions for your practice anyway.
The key steps I advise you to follow are:
1. Choose a cloud based accounting package. We can help you choose one that is right for you. We have specialists that look at a wide range of products including the product leaders Xero, Sage and Quickbooks.
2. Get the information up to date – and set a date by which you want to retrieve at the minimum a profit and loss report and a balance sheet report from the system.
3. Consider aligning VAT with year end to keep the number of quarterly submissions to HMRC to a minimum
4. Get this information reviewed by your accountant. Getting an outside opinion on what that information is going to tell HMRC is very important.