When the government released information on their “making tax digital” announcement, it left a lot of questions unanswered. The document said;
“The government will invest £1.3 billion to transform HM Revenue and Customs (HMRC) into one of the most digitally advanced tax administrations in the world. Most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account, reducing errors through record keeping.
HMRC will ensure the availability of free apps and software that link securely to HMRC systems and provide support to those who need help using digital technology. This will not apply to individuals in employment, or pensioners, unless they have secondary incomes of more than £10,000 per year.”
This begs the question, how will submitting four rather than one tax return a year be better for tax payers? The idea is that in using cloud based software, tax payers will enter their invoices and bank transactions into the software, which will enable them to submit the information once a quarter to HMRC to calculate the tax due for the quarter.
This will mean then, for self employed individuals and others that have rental income in the year, if they are using spreadsheets to record their transactions, they will need to move on to software, such as Quickbooks or Xero. With current tax legislation and generally accepted accounting principles, there are a number of year end adjustments that are made before submitting returns to HMRC. It is not yet clear how this will be done, if these adjustments will be made once a year or every quarter. When I spoke to Quickbooks staff at the Accountex convention in London, they said that Quickbooks will eventually move away completely from a desktop based solution to a cloud based solution, which appears to be something that is happening in the whole industry.
The government were due to announce more information at the start of June, but due to the referendum, they have put it back to the beginning of July.
We will wait to see what they say. For anyone that uses spreadsheets currently and wants to find out more about “making tax digital,” please feel free to contact us.