Back in August we blogged about ‘what making tax digital means for your business’. Now that the consultation period is over, we have taken the chance to look at how it can effect small businesses.
The HMRC have stated that by 2020 there will have been a full move to making tax digital. This move will hopefully speed up the process of taxation, be up to date in real time, remove the risk of missed deadlines and decrease unnecessary penalties overall. With your own access to your personal accounts, you can automatically upload information in the click of a button. So, what’s the problem?
It is now 2017 and more than 2 million small businesses are using digital financial records for their tax accounts. These digital tax accounts are a much more sophisticated version of the normal personal tax accounts a business deals with. As well as having all of your tax information in one place you are able to see your PAYE position, tax credits allowance and National Insurance offerings.
Small Business vs. Large Business
The difference of effect on small businesses vs. large businesses is the transition and crossover period. For larger businesses who already have a system in place for their taxes, the move to digital will be straight forward and simple, but for smaller businesses this isn’t the case.
Most small businesses, like yourselves, will already have a dedicated accountant or bookkeeper taking care of your tax accounts. With the move to digital, it will force business owners and the self-employed to use accounting systems that they may have never heard of before. As well as making use of these systems, they will need someone dedicated to deal with them online who doesn’t necessarily need to be qualified in accounting.
Costs, Time and Effort
The leading problem with this method for small businesses is that there is a reason they are not already using accounting systems. The time, effort and financial costs that are implicated using accounting systems have been avoided by small businesses for some time now and people are not going to take the change easy.
Having to learn how to use a system in the first place takes time, updating your accounts takes effort and implementing the system costs money – something a lot of small businesses don’t have spare.
Complex Accounting Systems
These complex accounting systems have the same overheads (roughly) regardless of the size of your business. So as you can guess, the costs of an accounting system to large companies is nothing compared to the financial impact they may have on smaller businesses in the same field. This has been noticed by the HMRC and there are propositions in place to use simple accounting systems for their accounts.
Financial Times Concerns
In an article posted on 14th January 2017, The Financial Times stated that ‘small business could be ruined if changes are botched’. It is this month that legislation plans will be published and HMRC claim that 2.5 million companies will be effected in the change but will the government really be bringing in an extra £625 million in extra tax revenue?
The issue here is that small businesses could have been accounting their tax expenses wrongly over the years and will actually incur hefty charges when the systems correct it. With the digital tax system being rushed into action quickly, the ‘additional cost and administrative burden for small companies’ risks putting some out of business or pushing them into ‘the hidden economy’.
With exceptions made for the smallest of businesses earning under £10,000 and free software being created for them, is this the answer to solving the taxation crisis? Or is it just creating another problem to push small businesses out of the water?
Get in Touch
If you need to know more about what making tax digital will do to your business, call Coleman and Co on 028 9266 3599. With services in value added tax, personal income tax, business income and corporation tax, pay as you earn, capital gains and tax investigations you never have to be left in the dark with your taxes again.