The government is committed to its aim of bringing the tax system up to date and for many businesses this means compulsory digital records within 2 years.
The consultation ends on 7 November but it looks as though from April 2018 all but the smallest businesses will need to submit quarterly financial information to HMRC.
By then HMRC says there should be free book keeping tools available to help businesses with this requirement, that remains to be seen, but the requirement looks set to be fixed.
This is a massive change for the businesses that keep their records either in manual format or even on spreadsheets. These methods will not be able to communicate with HMRC systems and so those clients will need to think again.
So the first thing that businesses need to do is decide which system they intend to use to carry out their record keeping from April 2018 if they use some sort of incompatible process now.
There are a number of online accounting packages available where you pay monthly for the service, usually at a low level of between £5 and £25 per month. We can help our clients choose one and even train them how to use the software. Our YouTube channel SFtV also has training videos.
Our concern is the ability of our clients to have the time or the skills to record transactions on this software in an accurate enough way.
These submissions will be used by HMRC to calculate your taxes, and of course there will be an option at the year end for your accountant to tidy up the submissions. What happens though if your accountant normally makes large corrections at the year end to claim for things you forgot or to deal with other non-regular transactions.
What would HMRC make of you if you submitted profits of £20,000 per quarter through the software and then your accountant made corrections at the year end that brought total profits down to £30,000 in total – would HMRC enquire into your accounts?
We all probably know the answer….yes.
We also don’t know yet what will happen if you make mistakes in the quarterly submissions – will there be fines and penalties for error?
So we think that it will become the norm for the accountant to check the quarterly submissions before they are sent, resulting in considerably more work for the accountant and costs for the clients. Some clients might even ask their accountants to take over the whole job.
There are some advantages to this because if the accountant is tidying up the records its not too much extra work for them to prepare management information. This will mean clients will have a better understanding of their performance without having to wait for the year end. Clients will also know if they have a large tax bill on the horizon.
We think there will be a big change in the way businesses manage their accounts and that many more will have management information available to them.
Our advice is to start thinking about this now and get your online book keeping solution in place so that by the time you have to use it, you know what you’re doing and you have an agreed process with your accountant.
So our suggested actions are
- Talk to you accountant and decide which book keeping package is best for you
- Learn how to use it with help form your accountant
- Work out how you will ensure accurate returns are made
As always we’re here to help so please get in touch if you want to discuss the content of this article.