This has been on the cards for quite a while and though many accountants thought it might never happen the technology is now available to make it a reality.
The first people to be affected are businesses, self employed people and landlords who have profits chargeable to income tax and pay class 4 NI contributions and their turnovers are in excess of the VAT threshold. For these people the changes will take effect from April 2018.
In April 2019 smaller businesses who have profits chargeable to income tax and class 4 NI contributions but are under the VAT threshold will come into the system followed by businesses paying corporation tax in April 2020.
Without going into too much detail it will mean accounting records being kept on software which can be submitted directly to the Revenue once a quarter. This might sound a daunting prospect especially for people who are not computer literate or prefer to keep manual records but on the market currently are a number of software products which are fairly simple to use. Most are based on uploading information direct from bank statements. This means that all transactions are included and the age old problem of agreeing cash books to bank statements is dispensed with.
We are currently looking at various software options and will be contacting all our clients in the coming weeks and months to advise on software choices. The intention is that the software will be cloud based so that we can have access to the records before the information is submitted to the Revenue. We can then review what is going to be sent and make adjustments if necessary.
Is it a good thing or a bad thing?
Something I have always been keen on is the production of regular management accounts for clients but most of the time it is unaffordable and time consuming. Why do I like management accounts? Imagine a situation where a business comes to its year end and 3 or 4 months later the accounts are prepared and show a loss. At that stage it’s too late to do anything about the loss other than to try and improve the current situation. If however you had some quarterly management accounts which showed a loss you could immediately react to it and try to correct the situation before it got out of hand. At the same time it can work the other way if you are showing a profit. At the very least you can plan for the tax liability but also can put planning into place to potentially mitigate the liability.
So I believe digital tax can be a benefit in that it gives businesses more regular information to take their businesses forward.
We see our role in the digital tax revolution as advisors of which software to use, assistance with its operation and then review of quarterly figures to ensure accuracy. This can only be an improvement on the current situation where most of the time we are reporting on historical data and by that time it’s too late to influence anything other than the future.
Though our role as accountants will certainly change in the future, we are confident that digital taxation and more widespread use of technology will allow us to get closer to our clients, give more valuable timely advice and add value to the businesses we deal with. Our mindset is to embrace the new regime as burying your head in the sand is not an option.