Are you tired of working long hours to fund your tax bill?
There are a lot of people who may feel as though they would need to work more shifts in order to fund their next tax bill, this is a short-term solution but it is tiring as well. When you are working seven days a week for a month you will have an income surge and cash flow wise you will have a lot of cash coming in. On the other hand, your incurred tax liability from that particular month will be high which means that it will be added to your future tax bill. It is best to not be in this position because you will be going around in circles and you will end up working forever for the taxman.
But the upcoming new changes may help you stay on top of your money and predict your tax bills in time, so that ‘working for the taxman’ may become unnecessary!
The new movement is called ‘Making Tax Digital’.
What is ‘Making Tax Digital’?
It is the new quarterly reporting requirement that will be coming into play from April 2018, and most of the self-employed individuals and landlords will start the duty from that time. Previously, if you were self-employed and running a business you would file a tax return once a year. However, with the new changes taking place you are required to report the tax on a quarterly basis. This does not mean you have to pay tax every quarter, it is only a process to enable you to update your records on a quarterly basis. From the government’s point of view, they are looking to close the tax gap and by doing this they will have an idea of how much you are going to pay to them.
The Benefit of Making Tax Digital
Making Tax Digital should not be seen as a negative change that only benefits the government. There are a few positive outcomes from this change such as:
- Prediction of Tax Liability – It will allow you to have a prediction of your tax liability so that you can pay the liability by the deadline set and make sure you meet your payment deadline.
- No Errors or Omissions – It makes sure you do not end up having errors or having any omissions on your tax calculation.
- Enable You to Update Your Records – If you are keeping your records up-to-date on a quarterly basis instead of 9 months after your year end, you will have the prediction on your tax bill. This will allow you to put money aside which will enable you to meet the payment deadline. You will pay the tax easily and you do not have to end up working so many hours to make up this tax bill.
The government has set a timeline for all the changes to take place:
- April 2018 – If you are self-employed or a landlord and are earning over the VAT threshold, which is £85,000 for the year, it is likely that you have to prepare for the changes. You will start to do the quarterly reporting from April 2018 so it is worth paying attention to it.
- April 2019 – If you are earning under the VAT threshold, the changes do not apply to you until April 2019. If you are VAT registered the same will apply but the changes should not make much difference to you as you file a VAT return quarterly already.
- April 2020 – By April 2020, everyone including limited companies, will be taking part in the quarterly tax reporting.
Exemption: Businesses, self-employed individuals and landlords with turnover under £10,000 are exempt from this duty.
What You Need to Do
- Check your Timeline – The first step you need to take is to check your timeline so that you can prepare for the quarterly tax reporting.
- Keep your Records Up to Date – The second step is to look at your current record-keeping and if you are keeping your records up-to-date regularly. Most people that are self-employed are currently doing their 16/17 tax return, it is best to get that out of the way as soon as possible and once it is done you would need to update your records.
- Consider the Best Record Keeping System for You – If you are using spreadsheets at the moment you can continue to use it as a record keeping system as long as you continuously update it quarterly. There are some online cloud-based software that you can also use that are very inexpensive and easy to use. It is automated as well so it can include your bank transactions which can simplify the process for you. An example of suppliers are Xero or QuickBooks, they are both good and are worth looking out for.