If you are keeping one eye on the business news you can’t fail to notice recent headlines about HMRC’s plans to move into quarterly accounts. This will also take us down the path of digital accounting; a step required if you wish to stay compliant with the coming changes. HMRC are in the consultancy stage until November. Over the next couple of months we will take a closer look at some of the issues and discuss the pros and cons of cloud based accountancy packages. In the meantime, here is an early look at the new plans plus some of the questions that the team at Inglis Chartered Accountants would like to see answered.
What do we already know?
1. Sole traders, business partnerships and landlords with an income of £10,000 or more will be be required to submit all of their business records on a quarterly basis as from April 2018. It is envisaged that companies will start submitting quarterly information in 2020.
2. There will be an end to the annual tax return with information submitted on a quarterly basis and a 1 month deadline. Whilst there will be penalties for submitting late, HMRC have stated these will be applied with a light touch. Although, in our experience, even a light touch from HMRC is not particularly pleasant.
3. There are no current plans in the consultation process to make you pay tax earlier; but it is already in the consultation that HMRC would like tax to be paid on a voluntary pay as you go basis.
4. All businesses MUST keep accounts in digital form i.e. software – currently spreadsheets will not be allowed.
5. Software must be internet enabled / cloud based. It is highly likely that your five year old desktop version of sage will no longer be enough.
6. Free software will be provided but not by HMRC. In order to be HMRC compliant software companies will be forced to offer a free version. How many transactions these free version will allow per month is an unknown, as is the length of any trial period.
7. Records must be kept in real time.
8. Software must be registered with HMRC and it will automatically link with your digital tax account.
What we don’t yet know:
1. How will HMRC handle capital allowances, accruals and prepayments, stock adjustments and the personal allowance? Will they be allocated quarterly? Will there, in effect, be four sets of accounts instead of one? HMRC say not but I would suggest this is the only way to guarantee full compliance.
2. As stated above there are no current plans to make you pay tax earlier. But it seems that this is only a matter of time and a tax payment date is unlikely to be consulted upon. This may suit some businesses but not all. If your trade fluctuates seasonally – busy in summer, quite in winter – surely you will not have to pay tax to merely reclaim it 3 months later?
3. There is much talk of business owners using Apps / Smart phones to make life easier. But a good system can cost nearly £30 / month + vat. This seems excessive for a small business with sales of around £10,500. In order to be HMRC compliant software companies will be forced to offer a free version. How many transactions these free versions will allow per month is an unknown, as is the length of time of a trial period.
4. All compatible software has to be able to handle and cope with VAT. We do not yet know if HMRC have plans to force more businesses into becoming VAT registered.
5. Perhaps the most time consuming issue of all is the statement from HMRC that says they “envisage” business owners would like to take this opportunity to scan or photograph all of their invoices. Quite who has time to scan and allocate every invoice / receipt, or can afford an admin assistant to do this task for them remains unanswered.
Of course, we will keep you updated as some of these uncertainties become clearer. But what can you do to prepare? I recommend that you start by looking at your own existing accounting systems and how they will be directly affected. Speak to your accountant. At Inglis Chartered Accountants we are ready, willing and able to talk through any problems you may have and provide an effective solution.
If you would like to speak to us about this or any other accounting issues please give us a call on 01904 787973.
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