From 1st April 2019, Making Tax Digital (MTD) came in for VAT Registered businesses turning over £85,000 or more. Businesses that fall into this category must now submit their VAT returns via a MTD approved digital system on a quarterly basis. This means implementing new software, processes, and training your staff to remain compliant with the latest HMRC reforms.
Submitting VAT returns digitally is the first stage towards moving all tax submissions to the digital format.
The overhaul of the system may make you groan inside, but there are many positive reasons to make the move to digital tax management. From easier audits to fewer errors, here are the top reasons to embrace the Making Tax Digital (MTD) movement.
7 Reasons to Embrace Making Tax Digital for Your Business
Instead of pushing against changes to filing taxes, here are seven reasons it’ll actually benefit your business.
1. Get Rid of the Shoebox
Every small business owner is guilty of ‘the shoebox’. Somewhere in a desk, there lies a box or file stuffed with random receipts from fuel costs to client dinners. When it comes to the end-of-year tax return, this box becomes a mammoth task to sort through.
Filing your taxes quarterly means you can keep on top of your paper receipts. There are even plenty of accounting apps available that integrate with MTD requirements that allow you to instantly photograph and store your receipts as you get them.
2. Collate a Comprehensive (Non-)Paper Trail
Reconcile your accounts easily with a few clicks compared to hours sifting through paperwork. A comprehensive digital trail makes it much easier to manage customer and supplier accounts from one place.
It’s also easier to find and share information when required. For example, if a customer requests a payment or invoice history, it’ll be easy to pull everything together in just a few clicks.
3. Simplify Audits
You never know when an audit is around the corner, whether it’s from a supplier, customer, or HMRC. Instead of spending hours or even weeks preparing for an audit, your digital accounts provide all of the required information in one place.
Many compatible software programs offer features such as change logs, which help to trace transaction history down to the individuals involved at each stage.
4. Improve Compliance
Filing quarterly taxes and using software to manage all tax-related transactions improves compliance for other standards, too.
For example, if your business is ISO 27000 accredited, using MTD software ensures your continued compliance with information security standards. This is because all Government-approved software must handle data security to this standard before being accepted on the list.
5. Reduce Mistakes
Spreadsheets and paper files leave too much leeway for human error. A spreadsheet mistake, for example, can easily be saved over and carried into future months—even years—of accounting data.
Digitising tax accounts allows you to follow the information with greater accuracy. Mistakes or unusual transactions will be easy to spot, and the change-logs on software make the trail back to the original error simple to follow.
6. Improve Tax Bill Accuracy
The old system of payments on account in July every year is a gamble. It’s based on your previous year’s tax bill, forecasting what you’ll be paying this tax year. You can overpay and be out of pocket on cash that could be earning you interest, or underpay and have a hefty end-of-year bill.
Paying quarterly bills means you can keep closer track of your tax payments. Instead of making forecasts and payments based on your previous year’s record, you can report real-time income and expenses for an accurate bill.
It also helps your cash flow as you can more accurately estimate, and set aside, your quarterly payments instead of waiting for one large end-of-year bill. Any under- or overpayments will also be much smaller based upon quarterly calculations instead of annual forecasts, too.
7. Real-Time Reports and Forecasts
Quarterly tax reports mean you gain a full overview of your company’s financial position every three months. This will help you to report to senior board members and financially interested parties with greater accuracy.
Your cash forecasts will also be more accurate, as you’ll build data for easy quarterly analysis instead of an annual one.
How to Manage a Smooth Transition to Digital Taxes
Whether you’re one of the businesses that have to convert to Making Tax Digital this year or want to be ahead of the game when it’s your turn in 2020, here are a few tips to have a smooth transition.
1. Research Your Software
There are plenty of programs approved by HMRC to handle your digital taxes. However, each one offers slightly different features. Some may be more expensive but suit large companies with multi-million pound turnovers.
Others will be a stripped-back and affordable version of accounting software for smaller businesses and startups. The features required by these businesses may be different. For example, sole traders on a tight budget may just want a gateway app to convert their spreadsheets into digital tax information.
2. Prepare Early
Make the switch to digital tax returns as smooth as possible by laying the groundwork first.
Scan your paper receipts into an app as and when they come in. File your supplier invoices in the same way, and if possible, request that suppliers send you e-invoices from now on.
You will then need to transfer your existing paper records or spreadsheets into your chosen software. This can take weeks for some companies to complete, so make sure you allow plenty of time.
3. Train Your Staff
Make sure any staff in purchasing and accounting roles are trained in their area on the software before you take it live.
Where possible, limit the access on your chosen software to different tiers to avoid additional errors. This allows you to offer more efficient training on the software, too. Offer basic training for areas everyone can access, then smaller more advanced training sessions where relevant.
Find an Accountant with Making Digital Tax Experience
Moving to digital tax records is a mammoth task for most businesses. Many smaller businesses simply don’t have the resources to research the best software, move files onto electronic databases, and handle the new HMRC systems.
An accountant may be what you need to make your transition to Making Tax Digital as smooth and pain-free as possible.
Contact us for a consultation today to find out if you need to make the switch—and if we can help you to do it.
FREE Making Tax Digital Software
Or try our this 90 day FREE trial of Xero Cloud Accounting Software, it’s the software we recommend and thats we are offering this extended trial.