Why Making Tax Digital could improve radically the way business tax is collected in the UK

Image by Gerd Altmann from Pixabay

The UK government’s tax authority, Her Majesty’s Revenue & Customs (HMRC) is not generally associated in people’s minds with technological innovation. However, the HMRC hopes its new initiative, Making Tax Digital (MTD), introduced in April 2019, will improve radically the way business tax is collected and administrated in the UK.

What exactly is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is the UK government’s strategy to bring tax collection into the 21st century. Under MTD businesses will be required to use digital technology to seamlessly provide the government with the financial data required to calculate their tax liability. This means that businesses will have to ensure they can provide this data automatically to HMRC, from their own digital accounting records.

Who will be affected?

The Government has already introduced MTD for businesses who pay Value Added Tax (VAT). VAT is a consumption tax added to the sales price of most product and services and the standard rate of VAT in the UK currently stands at 20%. MTD will be extended to include income tax and corporation tax reporting in the next few years. This means that the implications of these changes will be both immense and far-reaching.

To get an idea of the size and scope of the current changes it is worth looking at the numbers involved. Businesses with taxable annual turnovers above the VAT (Value Added Tax) threshold of £85,000 (around $107,000) will be required to comply with MTD. In the 2017-18 tax year, 17% of sole traders and 71% of UK companies had to pay VAT.

How does Making Tax Digital work?

MTD requires businesses to use specialized HMRC compatible accounting software. This is accounting software which has been designed to connect directly to the Government’s tax recording systems and transfer the required financial data to them automatically.

This means that business owners or their accountants will not be allowed to simply submit manual returns to the HMRC as they may have done in the past.

The intention is that removing human intervention will help remove the risk that businesses might submit incorrect tax accounting data. This can occur for a variety of reasons such as human error.

What does this mean for businesses?

On the face of it, meeting the requirements of the HMRC’s MTD initiative may appear to be relatively straight forward.

However, businesses will have to ensure that they have accounting systems that now meet the HMRC’s requirements. Significant numbers of business owners will have to make potentially time consuming and expensive changes to their existing accounting procedures in order to comply with the HMRC’s new arrangements. This means that they may have to purchase new compatible accounting software, or, where a business records financial transactions using computer spreadsheets, they will have to obtain special compliant ‘bridging software’ that has been designed to deliver the required financial information to HMRC.

The good news is that the HMRC does not endorse any particular accounting software system and at the time of writing the HMRC website lists and links to over 400 compatible software packages. Well known accounting software providers like Xero, Quickbooks (Intuit) and Sage are on the list, as well as a wide variety of other companies.

When is this happening?

From April 2019 VAT registered businesses and organisations with taxable annual turnover above the VAT threshold have been required to comply with MTD requirements. From 2021, MTD will be extended to include income tax and corporation tax reporting.

Criticism of Making Tax Digital

It is worth pointing out that not everyone in the UK business community is completely happy with HMRC’s plans for Making Tax Digital.

A survey by the British Chambers of Commerce of 967 UK businesses, undertaken in January and February 2019, just weeks before the introduction of MTD, revealed some worrying statistics.

The survey found that around 1 in 5 companies affected by MTD had never heard of Making Tax Digital or know it only by name. Furthermore, 38% of businesses have had to buy new accounting software or upgrade existing software resulting in significant financial costs. (Similarly, a survey undertaken by Quickbooks accounting software developers, Intuit, in March 2019 found that only 25% had already taken all of the necessary steps to become MTD compliant.)

The British Chambers of Commerce survey also revealed dissatisfaction with the Government’s timing of the introduction of MTD for VAT which is at a time when businesses are also burdened with the preparations for the impacts of the UK leaving the European Union (Brexit).

Conclusion

The British Government has high hopes for MTD.

They believe that business owners will benefit from MTD as they will find it easier to submit accurate tax returns. The government itself hopes to benefit because the planned changes will help cut fraud and under/over reporting of tax liabilities resulting from things like human error.

Whether the initiative will help the HMRC reach its goal of becoming “one of the most digitally advanced tax administrations in the world” remains to be seen. However, one thing is certain. Tax authorities all over the world will be watching closely to see what they can learn from the UK’s experience and to see if the benefits the UK government anticipate actually materialize.

Safer browsing. How Virtual Private Networks (VPNs) provide security and protect your privacy when you use the internet.

Photop of womany holding a tablet computer logged into a VPN (Virtual Private Network)
Image by Stefan Coders from Pixabay

Relatively few internet users realize that what they do online can be monitored and that the private information share online can be intercepted, recorded and perhaps even exploited by criminals.

In order to combat these problems, growing numbers of people are using Virtual Private Networks available from Virtual Private Network (VPNs) providers. Virtual Private Networks (VPNs) provide online security and enable anonymous browsing. This makes them an effective way to protect yourself against personal data theft and loss of privacy.

What is a VPN (Virtual Private Network)

A Virtual Private Network (VPN) service provider protects your security in two ways. Firstly, it encrypts the data which passes from your computer or other internet enabled device to your server. This encryption process is designed to render your data unintelligible to 3rd parties. Secondly, a VPN provider routes your data through their own servers and these can be located all over the work. This effectively means you are able to browse the web anonymously.

How VPN data encryption makes your private data more secure.

VPNs create a secure and encrypted link between your computer and the VPN’s server. This protects the data passing between your computer and your VPN’s server from unauthorised access by 3rd parties. (See Fig 1, below)

Fig 1: VPNs secure and encrypt your connection by creating a secure, encrypted link between your computer and the VPN’s server.

This process is very effective as it renders data unintelligible to hackers and other 3rd parties who may want to steal personal data and/or invade your privacy.

Travellers and people on vacation wanting to use public wi-fi networks to communicate with friends and family securely have the most to gain from using VPNs. They find using public wi-fi networks such as those free wifi services found in public places like airports, coffee shops and hotel lobbies very convenient. However, users are not always aware that these services are unlikely to be particularly secure. A VPN provides a very effective layer of security, which means that criminals and other unauthoried 3rd parties will be unable to access your personal information when you use unsecured public wi-fi networks.

The potential dangers of accessing the internet on public networks without a VPN cannot be overstated. Using public wi-fi networks without using a VPN means that personal data such as passwords, emails, photographs, online banking login details, credit card details and much more could be stolen by criminals. Furthermore, criminals are attracted to unsecured wifi networks as they know that many people use them without encrypting their personal data.

How a VPN’s server network lets you browse the internet anonymously

VPNs are frequently used by private individuals looking to access websites blocked by the authorities in the country they live in. Authorities can block access to people located in certain countries because they can identify which country you are located in.

However, VPN service providers overcome this restriction by allowing you to browse the internet using the VPN provider’s own servers. These are likely to be located all over the world. All a VPN user needs to do is decide which country they wish to ‘appear’ to be located in and select a service in that country. Once they have done so they ‘appear’ to be located in that country. So, even though you may be in say, Paris, France, you can select a VPN server located in, for example, the US. Then it would appear that you were accessing a website from the US, rather than France. This ensures that your private details are not logged by 3rd parties when you visit different websites.

It can be quite surprising how much visitor information is actually recorded and stored when you visit a website (without using a VPN). This information can include:

  • Your approximate location
  • The Operating System of the device you are using
  • The type of browser you are using
  • Your Internet Service Provider
  • Your IP address

Using a VPN means that your true location is hidden and are able to browse the web anonymously. This is important because many countries ban or restrict access to certain websites. This may be for copyright reasons, for other legal reasons (such as because of the content promotes terrorism, for example), or because the government in that country does not agree with the content of a particular website.

Important: While a VPN may let you bypass government restrictions you should bear in mind that accessing restricted sites may actually be illegal and the penalties for accessing restricted sites could be quite severe in some countries.

We discussed above how governments restrict access by it’s citizens to certain websites. Well, companies themselves may restrict access to their website based on the site visitor’s geographical location. This is called geo-blocking and it is usually done for commercial and/or legal reasons.

For example, advertising and marketing company InboxDollars.com uses geo-blocking to block site visitors from the UK, and redirects them to their company site in the UK InboxPounds.com (See fig 2, below).

Fig 2: Marketing website InboxDollars.com blocks site visitors located outside the US from opening an account.

Video streaming companies use geo-blocking to regulate who can and cannot access their sites. For example, to access Netflix USA you need to be in the US. Similarly, if you want to access TV shows on the UK’s BBC iPlayer service you need to be in the UK. So, for example, even though you have paid to access Netflix USA the fact that you are outside the US means that you cannot access the site.

VPNs overcome this problem by letting you access these services using VPN’s own servers which are actually located in those particular countries.

Geo-blocking can also be a problem when purchasing from websites located in other countries. Websites may vary the cost of items on their site, or even decline to complete a financial transaction, based on the apparent location of the person making the purchase. Again, VPNs can help overcome obstacles like this by making it appear as if the person making the purchase is located in the same country as the retailer.

Conclusion

VPN software can be easily downloaded and installed on phones, tablets and laptops and there are a wide range of VPN providers in the market today.

Whether you want more security when accessing the internet through public wi-fi networks or you want to bypass access restrictions, VPNs are a relatively simple solution to a potentially massive problem. Furthermore, the benefits of VPNs mean that their use is only going to increase in the future.

So, what do YOU think? Do you use a VPN? If you do, why? Share your views about using VPNs with our community in the comments section below.

So, what exactly IS a digital nomad?


Photo by Kyle Glenn on Unsplash

Spend time searching online for references to freelance work and you will quickly encounter the term ‘digital nomad’.

It can seem like everyone is talking about becoming a digital nomad and it appears to be a hot topic at the moment. A search for the term digital nomad on Google returns more than 3.3 million results!

So, what exactly IS a digital nomad and what is involved in becoming one?

What is a digital nomad?

The term ‘digital nomad’ is simply a ‘buzz word’ for someone who combines work and travel. More precisely, they can be described as location independent workers who combine freelance work with living in interesting and exotic locations. Digital nomads will have clients all over the world and interact with them over the internet. Relatively small numbers of people have worked remotely for centuries (e.g. journalists or writers) but now this opportunity is being embraced by increasing numbers of (mostly) young, highly skilled and very motivated people.

Geoarbitrage and the internet have made being a digital nomad possible

Digital nomads live in one country and sell their sevices in another. This is simple geoarbitrage. Geoarbitrage is a concept often associated with Tim Ferris, the author of The 4-Hour Workweek. Geoarbitage works so well because different countries have different living costs. Digital nomads live in beautiful and exotic locations with relatively low living costs and relatively high-speed internet and sell their services in countries that pay relatively well for them.

Geoarbitrage enables nomads to live relatively cheaply and means that they can use their earnings to finance further travel. This has made location independent working not just viable, but a particularly attractive option, for thousands and thousands of people.

Location — the key to the Digital Nomad lifestyle

The ideal location for digital nomads is one with lower living costs and relatively good internet. It should come as no surprise that there are many countries in Southeast Asia, South America, and perhaps to a lesser extent, parts of Europe that do offer that alluring combination of relatively low living costs and fast internet speeds.

Many nomads who are looking for that ideal location to live the digital nomad lifestyle start their search using websites like NomadList.com, developed by entrepreneur Pieter Levels. This is a frequently updated database of more than 2,000 of the best geographical locations for digital nomads. At the time of writing, some of the best destinations listed include Canggu in Bali, Bangkok in Thailand, Budapest in Hungary, and Buenos Aires, Brazil.

So, where do digital nomads actually work?

Every entrepreneur needs somewhere where they can run their business. The stereotypical image of a digital nomad is someone lounging on the beach with a cool drink in their hand, while blissfully working on their laptop. However, the reality is somewhat different!

You may find some people happily working from their hotel room, hotel lobbies, beachside cafes and yes, even lovely sandy beaches. However, many location independent workers find that the distractions, safety concerns, and feelings of isolation can mean that these are not always ideal workspace for long term success.

Consequently, this has lead to the rise of coworking shared workspaces where nomadic workers can rent a comfortable place to work on a daily, weekly or monthly basis. Nimman in Thailand, Hubud in Bali, and La Casa Redonda in Medellin, Colombia are just a few of the hundreds of shared workspaces worldwide that are popular with the growing community of location independent workers.

What sort of work do digital nomads do?

If there is a service that people are prepared to pay for and it can be provided over the internet then there is a good chance that a digital nomad is offering that service for sale, somewhere in the world.

Being able to interact with clients is vital, of course but that is not a problem forlocation independent workers. With a quality internet connection, a laptop, a Skype account, and a telephone headset, working for and communicating with clients could not be easier.

There are numerous freelance opportunities out there and many, perhaps most of them, will fall into one or more of the following categories:

Coding/ Programming — developing code such as Python, Ruby on Rails and C++.

Web development — setting up WordPress websites and plugins for clients. Also includes coding in PHP and HTML.

Internet marketing services — providing Search Engine Optimisation (SEO), Search Engine Marketing (SEM) and Social Media Management (SMM) services.

Graphic design — creating business marketing material such as business cards, company brochures, business branding, and logo design.

Translation, interpretation and English language teaching — interpreting or translating the written word to or from English. Internet video services such as Skype are ideal for teaching English to pupils anywhere in the world.

Copywriting and writing for the web — writing advertising sales copy and website content such as commercial web pages and articles.

Many digital nomads are exploiting other opportunities to earn a living including teaching in-demand skills online, travel blogging (and earning through affiliate advertising on their blog) and establishing e-commerce sites.

Digital Nomad Visas

Interestingly, a number of countries have recognized the massive potential benefits that digital nomads bring to their chosen destinations such as their entrepreneurial spirit, technical knowledge, as well as their spending power.

In order to capture that talent and enthusiasm countries are creating specific visas to allow location independent workers to live, work and pay taxes in their countries. For example, Estonia’s Ministry of the Interior plans to develop the world’s first Digital Nomad Visa, Thailand has a SMART visa program and in Europe, Berlin in Germany offers nomads the opportunity to apply for a Freelancer Visa. This appears to be a trend that could continue.

As so many people have demonstrated, it really is possible to set up your business in exciting locations with little more than the right skill set, a laptop, and a fast internet connection.

Of course, being a location independent worker does not mean that the other pressures that entrepreneurs face suddenly disappear! You will still be running a business on your own, possibly with limited funds, thousands of miles away from your personal support networks.

However, this should not deter you if you want to live the digital nomad lifestyle. There are many nomads out there who have been able to make the transition to location independent working, successfully. If this lifestyle really appeals to you, then you will be in good company. Thousands and thousands of people are living the ‘digital nomad lifestyle’ already and with the right level of passion and determination, you could be one of them, too!