Business owners should start planning now for sweeping changes to the way they file their tax returns, a leading accountant has warned.
By 2020, the vast majority of businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and to update HMRC at least quarterly via their digital tax accounts.
The Government initiative, called ‘Making Tax Digital’ will bring about the demise of the annual tax return.
In order to comply with the new legislation, businesses will be required to use digital tools, such as software or apps, to keep records of their income and expenditure.
The tools enable business owners to build a comprehensive view of their tax data, flagging up possible errors and offering prompts for information that may otherwise be overlooked.
Phil Bates, Principal of Cheshire-based chartered accountants Phillip Bates & Co, said: “The new digital system will be implemented from April 2018 to 2020, but business owners need to start preparing now.
“Some SMEs will already be using an online accounting system, but the majority will not and they need to start making the transition over the next 12-18 months.
“The ‘Making Tax Digital’ initiative will revolutionise the way businesses manage their accounts and tax affairs and, ultimately, has the potential to streamline and make the whole process more efficient. For example, you will no longer have to wait until the end of the tax year to discover how much tax you need to pay.
“But in order to get to that point, most businesses will have to go through a significant period of transition.”
Phil, whose www.pbates.co.uk office is in Neston but works with SMEs across Cheshire, Wirral and North Wales, said: “We have begun trials with a small number of clients, moving them across to online software and implementing best practice into their businesses.
“For some SMEs, the transition will be relatively smooth, while for others, including those still using pen and paper for their book-keeping, the process will take considerably longer.
“I have had conversations with a small number of clients who are reluctant to move to digital accounting with a few saying it may encourage them to shut up shop.
“The team at Phillip Bates & Co has undergone extensive training in the use of online software and, over the next couple of years, we will work with our clients to ensure they are able to comply with the changes well ahead of the 2018-2020 deadlines.”