You’ll probably have heard about tax going digital. But what does it actually mean for you and how will it benefit your business?
The new HMRC digital strategy will mean that you won’t have to wait until the end of the tax year to find out how much you owe. This will help you avoid any nasty surprises and can help you plan your finances much more effectively throughout the year.
When you have to start using your personal digital tax account will depend on the type of tax you currently pay. You’ll have to use the system in:
- April 2018 if you have profits chargeable to Income Tax and pay Class 4 National Insurance contributions
- April 2019 if you’re registered for and pay VAT
- April 2020 if you pay Corporation Tax
The new HMRC digital strategy makes tax less of a faff. At the moment, you need to send a yearly self-assessment form and fill out lots of the same information. With the new system all that info will be stored, so you’ll just have to fill out any new details or changes. This will save you a lot of time and stress, as you won’t need to worry about correctly filling out details that you’ve already given to HMRC.
A new system of online billing will mean that you’ll be able to see what you owe and pay online without needing to fill out a self-assessment form. If you’re struggling a bit with the digital strategy, HMRC have people on hand to talk you through what you need to know.
Your personal digital tax account
You might already have a personal digital tax account set up for your business that you use to pay Corporation Tax or for you VAT returns. From 2018, you’ll also be able to use your account to keep digital track of your accounts and update HRMC about your affairs at least four times a year.
HMRC are going to ensure that you have access to free software or apps that you can use to keep records of your income and expenditure. You can choose to pay for your own tax software packages if you don’t want to use the free ones supplied by HMRC.
You’ll use the software to record all your day-to-day financial activity. They’re really good at spotting possible mistakes in your calculations or figures which look out of place. Using the software will make it much easier for you to give accurate data to HMRC without the hassle of writing it all out each year. You can send the data from smart phone or computer directly to HMRC. Updating your personal digital tax account in this way is much easier than filling out lots of forms and making sure they get delivered on time.
The new HMRC digital strategy means that the tax system operates much more closely to real time. You won’t have to wait all year, fill out and file all your tax forms before finding out what you actually have to pay. You’ll be able to see straight away through your account a real-time view of your tax and a calculation of what you owe.
Your personal digital tax account will allow you to look at all your tax dealings in one place. Instead of having to visit different parts of HMRC’s website to pay your income tax, National Insurance, VAT and Corporation Tax, you’ll be able to pay them all in one place. You can pay everything in a single payment which will make things much easier for you.
The new HMRC digital strategy will also mean that if you’re running your business alongside another job, you’ll be able to see how each source of income affects your tax calculation.
Digital tax will bring the end of the tax return and significantly reduce the amount of paperwork you have to manage. If you’ve got any more questions about digital tax, you can check out their guide here.