What is Real Time Tax and How Does it Work?
The clock is ticking - Making Tax Digital is edging closer each day. Not only does this mean that, if your business is VAT-registered, you have to start paying your VAT via the Making Tax Digital platform but you’ll be one of the first taxpayers to road-test the “Real Time Tax” system.
Real Time Tax has often been overlooked because of the various twists and turns of the almost Tolkien introduction of Making Tax Digital. That’s why, in this article, the Panthera team explain what real time tax is, how it works, and what the benefits of it are.
What is real time tax?
Real time tax is one of the major components (or “selling points”) of the government’s Making Tax Digital scheme. In short, real time tax is a constantly up-to-date view of the amount you’re accruing in tax liabilities.
Many business owners face the problem of not really knowing exactly how much tax they owe, why they owe it, and when it’s due. It’s hard for businesspeople to budget for an unknown amount of tax and this lack of visibility has often been blamed as the reason that some business owners not saving up enough throughout the year to pay the amount of tax that they owe.
Why does HMRC want real time tax?
In order to let everyone know exactly how much tax they owe, HMRC want a system that will tell you the amount that is accessible at any time and on any device.
HMRC have stated that they intend to “collect and process information affecting tax in as close to real-time as possible to help prevent errors and stop tax building up.”
The advantages of real time tax
Currently, many businesspeople only get a true understanding of the tax liabilities facing them or their company close to the time of their VAT payment date, their self-assessment tax return, and so on. Someone might think they owe £5,000 in tax only to find out too late that the figure is close to £10,000. This lack of knowledge sufficiently in advance of the reporting and payment deadlines increases the likelihood of someone not being able to pay their tax on time. This, of course, can result in your business receiving a fine or penalty.
The way many business owners are circumventing this problem at the moment is by putting away a third of everything that they earn throughout the year. While this will definitely cover their tax liabilities in most cases, doing it this way can have major cash flow implications.
Real time tax is an attempt to remedy this problem. Once a taxpayer has a firm idea of how much tax they’ve accrued because it’s available online all the time, forward financial planning should become a lot easier.
The disadvantages of real time tax
The only problem that some people may have is that it requires you to submit your taxes digitally.
Although the vast majority of businesses in the UK do this anyway, there are still some people who will take the paper and pen option whenever it is available by claiming that they’re digitally excluded.
What will I have to do for Real Time Tax?
Our team will take care of all that for you so please do get in touch. Call us today on 01235 768 561 or drop us an email to email@example.com – we’ll be back in touch with you shortly.