What HMRC’s Making Tax Digital announcement means for contractors
Good news from HMRC! Yes, I know, but it had to happen sooner or later. If you scroll back through my previous blog posts you won’t have to look too far before you find a HMRC rant from me. And if you go back a bit further, you’d find another, and another, and so on. For the most part I am frustrated by their motivations and methods.
But, on this occasion (thanks in part to pressure from businesses, accountants, the Treasury Select Committee, and software companies like FreeAgent), they have finally seen sense. The compulsory switch over to digital tax records, for all businesses, has been delayed. In essence, the Making Tax Digital (MTD) scheme is a great idea and one which will benefit the economy, SME businesses and contractors alike. It was just that getting everything done and dusted by April 2018 would have been a little too ambitious.
So, the announcement, on 13th July that the new deadline date for contractors and businesses below the VAT threshold to comply with the scheme will be delayed until 2020, was excellent news for everyone.
What does this mean for contractors operating a PSC?
Over the VAT tax threshold? If your company generates a turnover above the VAT threshold (currently £85,000) you will need to need to keep digital records, for your VAT only, from 2019.
All contractor businesses: From 2020 (exact date to be confirmed) all contractors (regardless of turnover) will be required to keep digital records for all of their tax affairs (VAT and company): including filing their accounts online. It is also increasingly likely that these records will need to be filed quarterly by around the same time.
Of course, many contractors have already made the switch to online accounting and are enjoying the many benefits that it affords. The point is that MDT is a fantastic idea, with zero downside. While we applaud HMRC for seeing that pushing this agenda through too quickly would be a mistake, we also want to keep alive the importance and urgency for contractors to act sooner rather than later.
We encourage all contractors to use the FreeAgent online accounting system, not because they will have to choose an online solution at some time in the next three years, but because it is better for them now.
Don’t wait until 2020
Digitising the tax system is critical for the UK economy, and in fact we are some way behind other G8 countries in these areas. It will increase the efficiency of tax collection, reduce the time, cost and effort involved (for all parties) and help to resolve the £8bn tax gap that poor accounting has left inside our economy.
As well as being good for ‘the bigger picture’ of our economy, going digital will be beneficial for every single UK business too. There are still millions of contractors and sole traders that have yet to migrate to digital accounting and the basic truth is that they are missing out.
If you are one of them, here are some of the benefits that an early switch will give you:
- More efficient systems: reduced administration time and cost
- Increased accuracy: fewer mistakes and opportunities for fines or manual error
- Smarter business tools: accurate reporting, real-time data and tax saving information
- Better security: keeping all your data on password protected software
- Improved accountancy services: your accountant can do more to help you
- Early compliance: you will be ready for the 2020 Making Tax Digital deadline
If you’re considering moving to FreeAgent or another cloud accounting solution, please give me a call – we’ve tried most of them and I’ll gladly guide you to the one best suited to your needs.