Making Accounts Digital

As Tears for Fears sang in the 80’s….Its a mad world! And I find it kind of funny and I find it kind of sad…it’s a very very mad world

We thought that was a very catchy strapline for this article because – as you find out if you listen in detail to the (limited) information coming from HMRC as yet – although their new digital information campaign is branded “making Tax digital for businesses”, it is really all about making accounts and record keeping digital in near real time. Hence MAD (Making ACCOUNTS Digital) – it is appropriate on so many levels!  The tax then just follows (usually at the end as it does now).  So we thought we would highlight some of the information coming from HMRC to try and demystify what on earth is going to happen.

The campaign (which I will continue to refer by the acronym MAD!) is in consultation stage only at the minute.  The consultation has finished and HMRC are going through the responses to try and make some decisions on what the new requirements will look like;

It will apply first of all to unincorporated business and landlords (although there are some proposed exemptions from MAD for very small business).  It will not apply to companies yet (although HMRC expect MAD for companies to happen in due course).  It is due to come in from April 2018 and noises from HMRC and the Government are that they are VERY committed to the change so it looks set to go ahead despite big reservations from taxpayers and the professions.

Despite the official name “making tax digital for businesses”, HMRC’s focus is on updating records digitally and collecting information as close to real time as possible (a bit like Real Time Information for PAYE, if that analogy helps).   HMRC say that the reason for the change to digital record keeping is that there is a significant tax gap (the difference between tax actually paid and what should have been paid) which is down to basic errors and failure to take reasonable care in recordkeeping.  Examples given were columns of expenditure not adding up, and transactions being missed.  MAD is therefore about reducing the number of errors by making it mandatory for businesses to record transactions more regularly and digitally, rather than relying on a pile of manual records often not collated until after the year end when some have been lost.

HMRC estimate that £600 million more tax per annum will be collected under MAD simply because the record keeping will be better and errors will be fewer!  So of course the new digital campaign is all about tax – after all, most things boil down to cold hard cash in the end!  But tax is the endgame and recordkeeping is what underpins it and is fundamental to this brave new world.

In a Q&A session HMRC said that tax adjustments (such as capital allowances) could be made as the customer (you!) goes along updating their records but equally it could be done at the end, as happens now when a tax computation is prepared from accounts.  Similarly they said that accounting standards adjustments such as accruals, prepayments and stock value adjustments could be made on an on-going basis but could be done at the end if that was easier – customer’s choice (phew)! What came across in this particular Q&A session is that HMRC were really interested in having the records of transactions updated in digital format as close to real time as possible, before information gets lost/missed.  So perhaps it would be better to brand this campaign as “real time income and expenditure statements”?

Money bags 2Quarterly updates to HMRC will be needed (or penalties for failure to submit will occur – much like PAYE for employers).  But apparently those updates will not be a new or separate return to complete.  The intention is that the statements will be able to be generated from the digital software system you have chosen and it will simply capture the info HMRC want and sent it to them in the required format.   That is the hope and that is what HMRC are talking to software providers about.

HMRC say that the government will make help and support available to make the change to digital.  They don’t know what that support will look like yet (part of the consultation process).  They are looking at why people might find it difficult to switch to digital record keeping to try and tailor the kind of support they offer.  There will also be an exemption for certain people who cannot go digital (definition still being consulted on) though “cannot” is different to “don’t want to/find it hard”. We are also told that they have promised free software will be available to those with the simplest business affairs (though provided by software providers rather than HMRC).

As we said in October’s Taxing Times, we don’t want clients to face this new digital world alone.  So we have put together a CAT team, that is our “cloud accounting” team who can help with all digital accounting matters, provide advice on software packages and help hold your hand as much or as little as you want while navigating the new accounts/tax digital age! We won’t push you to any one particular cloud package, we will look at a whole range of what’s out there and advise you on what’s best for you and your business.  Contact Kristina Gash on 01228 530913 or email

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