Some businesses may have won a delay in the Spring Budget, but others now must embrace technology or face the wrath of the tax man, writes Susie Walker
Businesses across the country have a maximum of a year to turn traditional ledgers and lever arch files into fully electronic records which capture every aspect of their financial affairs – profit or loss, income and expenses, and tax records.
From April 2018 there will be a requirement to report business profits to HMRC quarterly. The Government has said that free software will be available to businesses with the most straightforward affairs and that spreadsheets will still be acceptable if combined with software; details of how it will all work in practice are still unknown, but what is clear is that there will be no avoiding the digital age.
The Chancellor announced on Budget day a short stay of execution for some small businesses but the majority of unincorporated businesses and landlords will have to embrace technology – if they are not already doing so – or face penalties from HMRC.
There will be exemptions for some on grounds of being “genuinely digitally excluded”, with such exemptions being considered on a case by case basis – related to age, geography, disability or other factors. The government has plans to assist those affected and we await further detail.
Making tax digital is a major issue across the north-east of Scotland. Thousands of businesses are now in a position where, from April 2018, they must report income, expenses and profit to HMRC on a quarterly, real-time basis usingp a completely digital platform or face up to a penalty.
These businesses, many rural sole traders involved in farming, food production and other associated activities, often don’t have access to broadband due to their location – but they must make the transition in a short timeframe. We are yet to see how onerous applying for an exemption will be.
While the Chancellor in part listened to pleas made for time to prepare for the move to digital reporting, the stay of execution to 2019 offered for those below the £85,000 VAT threshold only covers a small proportion of businesses – where someone with one furnished holiday let may get another year to prepare; owners of a few holiday lets may not be so fortunate.
Across Aberdeenshire, Moray and the Highlands, you will find businesses still working with fully paper-based accounting. They are not computerised at all, and don’t have the online access needed to be able to comply within a year of the new tax year that’s approaching.
What should businesses be doing now to prepare? Speak to your accountant and evaluate what the optimal solution is for the scale and complexity of your business.
There are a lot of accounting software packages available in the market, but a spreadsheet may suffice. Plan ahead now, don’t wait. HMRC estimate that the additional cost to a business to comply with MTD is £280; it could be a lot more.
Susie Walker is head of tax at Johnston Carmichael