Last week’s Budget contained a lot of promises and vague statements, which we will distill down for practical advice next week. In the meantime the pressure to move towards digital tax reporting can’t be ignored, so we examine how you can prepare your clients. We also have advice about shareholdings which qualify for entrepreneurs’ relief and an update on the issue of S codes
 

This is an
extract from our topical tax tips newsletter dated 17 March 2016
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Digital accounting records 
The Government wants all businesses to send HMRC a summary of their accounting records every quarter. This data will update the “digital tax account” for that business held by HMRC, and will enable the taxpayer to see what tax they should be paying much earlier than would be the case when submitting an annual tax return.    
  
This is not a fairy tale, but a representation of the vision set out in the HMRC document: Making Tax Digital. There is no appreciation in that document of the effort involved to turn raw accounting data into accounts which show a taxable profit or loss. HMRC believe that all such issues will be solved by accounting software and the submission of data to HMRC will be as easy as one click. 
  
To enable this future fantasy to become a reality, every business, and every landlord who receives more than £10,000 of income, will have to maintain their accounts using software that can communicate directly with HMRC. That excludes electronic spreadsheets, and of-course paper based accounting records. 
  
An ICAEW commissioned survey has found that only 25% of businesses use accounting software to maintain their accounting records, and just 18% of sole-traders use such software. So to achieve the Government’s target of businesses making quarterly updates to HMRC, some 75% of businesses, and 82% of sole traders will have to change the way they keep their accounting records. The small businesses need to convert to digital accounting within two years, as businesses with turnover below VAT threshold will be required to submit quarterly updates from April 2018. 
  
You need to start conversations with those clients who are not currently using accounting software, and persuade them that the Government is serious about this digital future. You will also have to examine the processes within your own practice and make some decisions about which forms of accounting packages you will deal with. For some businesses “cloud accounting” will provide the answer, others will need bespoke accounting software.

This is an
extract from our topical tax tips newsletter dated
17 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The
full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
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