Making Tax Digital
The Government have brought in an initiative to transform the tax system, sparking the end of the Tax Return by 2020.
The aim is to make the tax system more efficient, effective and easier for taxpayers through a fully digitalised system. The system will apply to most businesses, the self-employed, landlords and individual tax payers.
What are the changes?
- Businesses under £10,000 will be exempt from Making Tax Digital
- Tax payers will submit summaries of their income and expenditure quarterly
- More taxpayers will be able to adopt the cash-accounting basis of annual accounting.
When will the changes take effect?
Businesses will be mandated to use the Making Tax Digital for Business system in April 2019, initially to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.
What’s the bottom line?
It’s good practice to ensure your accounts and tax affairs are kept up to date regularly in readiness for this change. This will smooth the transition from annual to quarterly returns, making it far less painful. Please contact us to discuss switching to a monthly accounts package with regular financial report. In addition, starting a tax savings fund in readiness to pay tax quarterly is a good idea to alleviate potential cash flow problems when quarterly returns kick in. Ensure the tax fund is set up in your Limited Company name in order for the savings transfers not be treated as dividends.