Announced today in the Budget are plans to eliminate the need for millions of individuals and businesses to file annual tax returns. Starting in 2016, we are told that 5 million small businesses and 10 million individuals will have access to their own digital tax account, which will be expanded over the life of the next parliament to cover every individual and small business. In future, we are promised, people will only need to check their tax information online to know how much they owe, while those with more complex tax affairs will be able to use their account to declare income and pay tax in year.
But how will the Revenue know what income you are receiving? RTI (Real Time Information) has already started this process for individuals under PAYE, and it is only a matter of the Revenue linking their systems together to transfer this information across to the individuals tax account. Additionally, as time goes on, the accounting software that small businesses use will feed data directly into their digital tax account. But that requires the small business to:
Maintain an electronic bookkeeping system.
Keep that system up to date.
Accurately record transactions so that all allowable expenses are claimed.
Although billed as giving small businesses more certainty about what they need to pay and when, so they can manage their cash flow better, there is the possibility that there will be a one off negative impact on cash flow as the date for payment of the tax will be brought forward to “in year”.
As a small business owner, are you content that you know what expenses are allowable? Do you have the resources available to maintain such a system? How will you know that the information the Revenue has is correct? Much is still to be made clear, but if you want an informal, no charge, no obligation chat on how this might affect you, please give me a call.