The paperless future is almost upon us, and here at The Life Hub, we couldn’t be happier! The digital tax revolution is naturally something we wholeheartedly support, although several reports suggests that not everyone thinks it’s good news… yet.
According to Creative Boom, 43% of the freelancers and micro-businesses they surveyed had no idea what Making Tax Digital actually was, while 86% felt the government was “keeping them in the dark” on the subject. Once they had been brought up to speed, 45% believed it would make their life easier (hurrah!), 20% felt the opposite (not so hurrah!), while 8% felt that Making Tax Digital would be “downright negative” (absolute boooo!)
OK, so we shouldn’t be so flippant. The truth is that many of those who responded negatively will either have a less-than-positive experience with digital tax reporting (which is a shame), or they simply haven’t investigated it properly yet. As one of the UK’s leading online accountants, My Accountant Friend is bound to have a positive take on Making Tax Digital, but they’re also very well placed to explain what the initiative is.
And so we went to ask them. Here’s what they had to say.
What is Making Tax Digital?
The 86% who felt that HMRC was keeping them in the dark weren’t too far of the mark, until recently. It’s only in the last week or so that extensive guidelines have been published on the subject. Seeing as we’re fairly convinced you won’t have had the time to read through the full set of documents, here’s a brief summary.
We’ll all be digital by 2020
There’s no escape! The future is upon us, and Making Tax Digital is a mere three and a half years away. Tax returns filed on paper are going to be very severely frowned up, and all freelancers, independent contractors and micro-businesses are going to be expected to use digital software to file their returns – HMRC won’t be providing their own.
As far as we’re concerned, that’s a positive thing, and with the right help it will definitely do wonders for your tax efficiency. Here’s a little video from My Accountant Friend explaining how software of this nature has helped small businesses recently.
They’re hoping to hear from you quarterly
…by which we mean that HMRC are expecting what they’re calling ‘summary information’ every three months (you can send it even more regularly, if you’re feeling keen). Seeing as you’ll have everything to hand in your digital account anyway, this is less bothersome than it sounds, and, indeed, clients of online accountants like My Accountant Friend are already seeing the benefits of this kind of interaction.
Tax will be voluntary (!?)
OK, so it won’t be voluntary in the absolute sense of the word, but it will be something you can make voluntary payments towards at any time of the year. The idea is that you’ll be able to keep things flexible, and it will certainly help freelancers and contractors who see regular fluctuations in their monthly income, as well as those who tend to have their tax contributions burning a hole in their pocket until HMRC comes calling each January. In this new scenario, you can make payments whenever you are able to.
Sole traders and partnerships get a £10,000 threshold
You’ll need to be generating a turnover of £10,000 per year before Making Tax Digital applies to you, so the suggestion is that it’ll currently affect sole traders and partnerships. The aim is for HMRC to provide a separate consultation for Ltd Companies later in 2016. We’ll be writing more on the subject when that has been announced, so subscribe to our newsletter at the bottom of this page.
Drive carefully or there’ll be points on your license…
…or something of that nature! The suggestion is that there’s a new penalty system coming into play that mimics the points scheme used by the DVLA. Rather than being fined for a single misdemeanour, you’ll get a series of marks by your name leading up to a fine once you reach a given number.
When is Making Tax Digital likely to begin?
It has been edging towards reality for some time, with the initial consultations having taken place in January, 2016. The fact is, whether you like the idea of Making Tax Digital or not, you’re already a part of it. In April of this year all businesses in the UK were given their own digital tax accounts, marking completion of the first major step.
The screenshots above are taken from HMRC’s website (where you can read the full PDF report) and give a rough outline of the steps they intend to take in the build up to Making Tax Digital in 2020. As you can see, things are still fairly sketchy at the moment, but we’re keeping an eye on developments every day.
Click on the following link for more information on how you can work with an online accountant and get a step ahead of the curve.