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What small businesses need to know about Making Tax Digital

Making Tax Digital will affect businesses of all shapes and sizes
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Making Tax Digital will affect businesses of all shapes and sizes
Siobhan Stirling - Sharp Minds Communications by Siobhan Stirling - Sharp Minds Communications
Owner/Director - Sharp Minds Communications Ltd

If you still submit your tax returns manually, from April you will need to switch to a digital system under the government’s Making Tax Digital initiative. It’s a plan by HM Revenue and Customs to make the system more efficient; avoidable mistakes by tax payers who struggle to keep accurate records of their tax data cost the Exchequer over £9 billion a year . The programme aims to reduce these avoidable costs by allowing the process of tax-paying to run more smoothly.

What is Making Tax Digital?

Making Tax Digital is an initiative to modernise tax systems to make the process of tax paying more efficient. It aims to store all tax information in cloud-based digital accounts, allowing businesses to update tax information in real time, rather than retrospectively.

A cloud-based server is a network of remote servers which host data via internet storage, rather than being stored on local servers or desktops. For example, Microsoft OneDrive and Dropbox are both cloud-based storage platforms. The aim is to transfer finance data to accountancy cloud-platforms. 

This change will affect businesses which earn over £85,000 and pay income tax, national insurance, VAT or corporation tax, requiring them to keep cloud-based digital tax records and update them regularly, and to update HMRC quarterly. HMRC have attempted to implement this initiative multiple times in the past but are now determined to get it right this April.

Making Tax Digital seminar

Capital Space attended a recent seminar for businesses on Making Tax Digital, hosted by Barclays in conjunction with Tonbridge and Malling Borough Council, to provide information to our customers and inform them of the changes. Barclays digital engagement manager Sam Hussein ran through the advantages of cloud-based solutions versus device-based software, citing them as:

  • a rolling licence
  • centrally stored data
  • frequent updates
  • shared costs
  • flexibility: businesses can access, import and monitor their data anytime and anywhere.

By contrast, device-based software can’t be accessed remotely, entailing higher security and software costs, with licences having to be paid upfront.

What does it mean for businesses?

Handwritten cash books and ledgers will no longer be permitted by HMRC as they cannot be synced with cloud-based accounting platforms. Locally stored spreadsheets will be permitted as long as businesses use bridging software to extract the contents from the spreadsheet and upload it to HMRC.  

There are lots of cloud-based accountancy solutions out there to help businesses make the change – Barclays offer a SmartBusiness Dashboard app with the option of a free trial before paying for the full subscription.

Everyone will be allocated a digital account through the current Government Gateway, which will need to be updated with data from your accounting software at least quarterly.

HM Revenue and Custom’s Making Tax Digital initiative will be rolling out in April, so it’s important that your business is ready for it. If you have any questions then speak to your bank or your accountant to ensure that you’re prepared for the change and don’t incur any penalties. 

To find out how  CapitalSpace virtual offices or business premises

could benefit your growing business,

call 0800 107 3667