Ah, tax return season. It’s not the most exciting season of the year, but time of rushing to fill in your return online by January 31st will soon be a thing of the past.
You almost definitely have access to a digital account already – 98% of Corporation Tax returns and 99% of VAT returns are submitted online. However, the important thing to know is that if your business is your main source of income (or if your business is a secondary source but brings in more than £10,000 a year) you’ll need to update HMRC every quarter by 2020 – not just once a year.
While updating your tax four times a year might not seem that dreamy, it’s all part of a move by HMRC to dramatically modernise the tax system – and actually has the potential to be beneficial for your business by ensuring you are in touch with your tax affairs throughout the year. If you leave it until the last minute, it’s easy to panic or make mistakes.
Under the new system (which is looking to be finalised by 2020) tax will be fully digital. This should mean that form-filling and bureaucratic admin is reduced, delays are reduced too, information is digitally uploaded, and there will be more connection across the tax system (ie if you upload something, it’s there – you won’t have to repeat the information).
What do small businesses need to know?
- By 2020, the majority of businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally. They will be expected to update HMRC at least quarterly via the new digital account.
- The changes will be introduced for some businesses from April 2018.
- Business founders and the self-employed will be able to use digital tools – software and apps – to do this. There will be free products available from HMRC, but there are also other commercial software packages that businesses can use. If in doubt about the eligibility of your software, check with the makers or consult an accountant.
- Once you have the relevant data on your business that’s needed, you can update HMRC through your computer or device
- This may also mark the end of tax returns, as your data is uploaded more regularly
- One major difference is that tax will be streamlined. Right now you might have to pay income tax, VAT, National Insurance or Corporation Tax, as well as any other benefits or pensions. You might also be running a business alongside a job. Under the new system you will be able to get an overview of all this, and all the payments you have made. The idea is that it almost consolidates your various taxes into one.
- From 2017, the digital tax system should prevent PAYE under or over-payments automatically.
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