The accounting world has been watching the progress of the new finance bills carefully, with the most recent one coming out in early September. It might seem like more of the same old same old – and frankly, as an SME owner, you’d probably rather spend your time running your business than reviewing policy.
That’s why we’ve read over it for you, collected the highlights, and created a brief overview of what it means for your business.
Hang on, why is the Finance Bill important again?
HMRC is making some big changes to financial policy, a number of which will have big implications for SMEs. This particular bill is the second to come out this year. The first was a very long draft that got dramatically gutted just before the election. In this new version, many of the things that were cut from the original bill have resurfaced, including Making Tax Digital.
Finance Bill highlights:
- Penalties for tax avoidance are going up, and HMRC is already cracking down on small businesses that try to use grey areas to cut their tax bill.
- The way businesses can use company interest expenses is changing. This will primarily hit bigger businesses trying to use their interest payments to pay less tax.
- Non-UK citizens who have lived in the UK for a long time will have to start paying taxes like UK residents.
- Making Tax Digital is going to happen, but won’t come into force for 18 months, though SMEs really need to start thinking about how they’re going to comply with the new requirements.
What’s happening with MTD?
MTD was noticeably absent from the first finance bill that came out this year, but it’s back on the table in this version of the bill.
Quick reminder: MTD is an initiative mandating that all UK SMEs file and pay their taxes using a digital interface. Rather than file a bunch of documents once a year, businesses will have to record upload their accounting data continuously, and confirm it with HMRC four times a year. They’ll also get a sense of what their tax obligations will be throughout the year with the introduction of Real Time Tax. While many accountants are excited about the shift, small business owners are yet to get on board.
Even though SMEs are less than enthused about MTD, the new bill has confirmed it will be coming into force in the next couple of years. New information suggests that it will start with VAT, then be rolled out for all business finances a year or so after that.
The earliest we’re looking at anything actually becoming mandatory happening is April 2019, though a voluntary programme is scheduled to start in April 2018. Assuming the government doesn’t overshoot its window for consulting and developing MTD, and that it actually rolls out according to the updated schedule, people who are registered for VAT and have a turnover of more than £85,000 will have to start keeping digital records and confirming them with the government on 1st April 2019. Once that comes into force, MTD is expected to roll out to all businesses (VAT-registered or not) in 2020.
What this means for your business
Assuming you’re not running a big business that’s relying on interest rates to lower your taxes, nothing much yet. It’s going to be much harder to skirt the edges of the law when it comes to tax avoidance, so if you’ve been playing a bit fast and loose with your deductions, this is a clear warning to stop.
The biggest implications for UK SMEs are in relation to the MTD roll-out. If you’re registered for VAT and meet the £85,000 threshold, you should be looking at digitising your bookkeeping and accounting, if you haven’t done so already. While 2019 may seem a long way off, it’s worth getting your finances sorted and ready before they have to be. Penalties will be enforced for non-compliance with MTD.
And, if you’re running a business that’s not VAT registered or doesn’t meet the turnover threshold, you should be considering digitisation anyway. Not only is it a better practice for your finances, it’s going to be mandatory in the next couple of years, and there’s loads of help available if you’re struggling with the switch. We’ve got archives for you with the latest news, an incredibly intuitive MTD-compliant product for you to try, and we’re always here to answer questions about going digital.