Changes to tax conditionality are currently taking most of the headlines in the taxi and private hire sector, but there‘s a potentially BIGGER tax change further on the horizon when ‘Making Tax Digital‘ arrives. TaxiPoint spoke to Eazitax’s Gary Jacobs to find out more and learn how drivers can prepare for the changes.
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is the Government’s plan to make taxpayers bring together all their information in one online place, and to transmit it to that place digitally. It’s not hard to see however that it will help end the ‘hidden economy’ and usher in the cashless society.
This initiative in effect, means the only way to access the tax service is through software, and expects to be in full use by 2024.
Some accountants (such as ourselves) are currently involved in the pilot. Why? Because it is an inevitability, and we would rather be in it for our clients, than on the outside looking in.
There have been two postponements due to the pandemic but currently the income tax MTD rollout will be here within two years, and this will affect every sole trader and every business.
Why do you think HMRC have brought in new MTD requirements?
To quote HMRC:
“MTD is a key part of the government’s plans, their ambition is to be one of the most digitally- advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply. Keeping digital records and providing updates to HMRC directly through MTD-compatible software will help reduce errors, cost, uncertainty, and worry. This streamlined digital experience will integrate tax into day-to-day business record-keeping, so that businesses can view their tax position in-year and be confident that they have got their taxes right.”
Or it could just be that the Government wants to know what you are earning and when, and in a cashless society this makes your income transparent.
How will MTD impact the taxi industry?
We will inevitably have to accept Digital Record Keeping. However, the big hill to climb will be that there will have to be quarterly digital returns to HMRC. The scary bit in that is the word ‘quarterly’.
That’s right in two tax returns time, we won’t be panicking about your tax returns and accounts once a year, but every three months!
This means that we must find a way for you to get your stuff to us every three months and either you must produce it from software, or we must digitise it for you!
How does this affect the taxi trade? Well, no more than any other business. EXCEPT no more driver sheets or weekly books by hand. Remember your accountant must be able to produce a tax return every three months so dropping off a shoebox of receipts and printing out your bank statements will be a very expensive way of dealing with that. Your accountants fees could double or worse...
How prepared is the taxi industry for MTD?
Many in our trade are just not prepared. Not just drivers, any operator that isn’t doing their bookkeeping digitally will have a struggle. In many ways the message about MTD has been lost during the pandemic, but it will be on us soon enough. However, there is hope for drivers.
What will taxi drivers need to do to prepare for MTD?
The future is about a thing called data capture:
“Any method of collecting information and then changing it into a form that can be read and used by a computer.”
Not as complicated as it sounds, any forward-thinking accountant is concentrating on giving drivers easy ways to get their info to them. We are introducing both an app and a simple data capture tool, so that drivers can just photograph their receipts.
There is also an initiative called open banking that allows bank accounts to be safely downloaded to bookkeeping software. The big problem is price. I don’t see any of our clients being able to pay for any of the ‘big name’ products like SAGE or XERO or QuickBooks. If you are paying £30 a month or so for a tax return you aren’t going to pay another £20/£30 quid for more software, so we are making sure that our data capture tool is only £2 a month, and the app is free.
In conclusion as a trade, in truth, we are as ready as our accountants are. We are making sure that even the most techno terrified of our clients can use our software, make sure your accountants are investing in your training now.
Gary Jacobs is the Director of EAZITAX, a driver tax return service. You can catch more of Gary on the TaxiPlus ‘What time you on ‘til?’ Podcast.