It’s hard to find any aspect of our daily lives that isn’t automated, online, or otherwise dependent on technology in 2020, and tax is no different.
Businesses are increasingly owned and operated by so-called ‘digital natives’ – people who have never known a world without the internet, who grew up playing with touchscreens and have never received a paper bank statement.
Instead of TV and CDs, they stream media on tablets and phones, and choose what to consume with the help of algorithms.
Even dating is digital these days, with around one in three UK relationships starting online.
Increasingly, people expect to be able to conduct contactless transactions with a card or smartphone, and to communicate via email, messaging apps and social media rather than through voice calls on a landline phone.
There’s pressure from above to get online, too. Successive UK governments have been pushing the digital agenda for years and HMRC launched its pioneering, often troubled self-assessment tax return service almost 20 years ago.
Resistance, as they say, is futile, and in this context, we’re absolute believers in the power of cloud accounting to make businesses more efficient and to make running a business more enjoyable.
If that doesn’t convince you, though, there are some specific tax changes underway and coming up that might.
The Government’s Making Tax Digital (MTD) scheme aims to fully digitise the tax system, and VAT was the first tax to be included as compulsory under the scheme’s rules.
It requires businesses with a turnover above the VAT-registration threshold to keep digital VAT records and send their returns using compatible software.
The implementation of MTD for VAT started in April 2019, but it’s set to hit the end of its soft-landing period this year. That means, from 1 April 2020, certain MTD rules on digital links will be stricter, and HMRC may apply more penalties where businesses are not complying.
If you’re already reporting under MTD for VAT, it’s worth double-checking that you’re meeting all of HMRC’s requirements before the soft-landing period comes to an end.
The MTD for income tax pilot scheme is already running, and allows self-employed people and landlords to keep digital records and send updates on their income tax to HMRC, instead of filing a self-assessment tax return.
The idea is to give you an estimate of tax you might owe throughout the year, rather than waiting to find out when you file your tax return.
This may become compulsory at some point in the future, but is unlikely to be brought in until April 2021 at the earliest.
Corporation tax is one of the next taxes that could be in line for digitisation but, as with MTD for income tax, it’s not expected to be implemented until April 2021 at the earliest.
At this point, there’s very little information available about how it would work in practice, but it’s likely to be similar to MTD for VAT in that it will require the digital reporting and filing of companies’ tax information.
The inheritance tax system has recently been under scrutiny, with reviews published by the Office for Tax Simplification (OTS) in November 2018 and July 2019, and by the all-party parliamentary group on inheritance and intergenerational fairness in January 2020.
Both bodies proposed using digital tools to help simplify the tax, with the OTS recommending a “fully integrated digital system”, including the ability to apply for probate online.
The all-party parliamentary group suggested “compulsory electronic reporting” of gifts given throughout a person’s lifetime, which may be liable for inheritance tax.
Neither change has been confirmed by the Government, however, and we’ll have to wait until the Spring Budget on 11 March 2020 to find out about any reforms to the inheritance tax system.
At Evans & Partners, we’ve been helping small businesses since 1943, but we’ve never been afraid to embrace new technology.
We’ve helped hundreds of businesses move to Xero cloud accounting software, and to see the benefits of increased efficiency and up-to-date business insights that it offers.
Contact us to find out more.