The time has come for businesses to digitise tax records and returns. Are you ready for your business growth to rocket?
HMRC’s new Making Tax Digital (MTD) scheme is set to provide a £57 billion payout over five years thanks to increased productivity.
The new system is still in the early stages though, leading to confusion for many business owners. Do you need to sign up to MTD? How will it affect productivity? Can it really improve profits and growth?
If you’re overwhelmed by MTD or feel it’s going to be a hindrance to your business success – stop!
Here’s everything you need to know about why the MTD scheme will boost your business success in the long run.
The MTD Lowdown: Who, What, and When
Before we look at why the Making Tax Digital scheme will improve your business profits and growth, let’s take a look at the basic MTD information you need to know.
Keep reading to find out if your business is eligible for the scheme, what it really involves, and the rollout timeline.
Who Does MTD Apply To?
At the moment, only businesses registered for VAT need to comply with the MTD scheme. If you have previously paid VAT at any time since business launch, but will not meet the £85,000 turnover threshold this year, you will still need to comply.
It will become compulsory for more business owners as other tax return types, such as Income Tax and Corporation Tax, go live on the scheme.
Very few businesses will be exempt from the scheme. Digitally excluded businesses are those operated by people without internet access or technology skills. Exemptions and extensions will be granted on a case-by-case basis.
What Does MTD Mean?
Making Tax Digital involves quarterly tax returns submitted via software to HMRC. All of your transaction records must now have a digital record attached to them, too.
That means your paper receipts must be stored digitally. Taking a photo of a receipt or invoice counts as a digital record. You must keep these digital records secure and accessible for audit for seven years, just as you used to for paper records.
Returns must be submitted via approved third-party software to HMRC: the Government department will not provide software.
When Do I Have to Comply?
If your business is VAT-registered, you must already be compliant as of 1st April 2019. There are exceptions for large and complex businesses: if you’ve been given an extension, your accountant or tax specialist will be aware.
The self-employed, those not registered for VAT, and landlords will also need to comply in the future. At the time of publication, this will be April 2020 for Income Tax and Self Assessment returns; there is no date yet set for Corporation Tax returns.
6 Ways Making Tax Digital Will Boost Your Business
Many business owners are worried about the impact MTD will have on their productivity. It’s true: the introduction of new software and systems is likely to have an initial negative effect on staff performance.
However, once staff training is complete and everyone on your team knows the role they play in digital record-keeping, the benefits will far outweigh the initial learning curve.
1.Real-Time Financial Reporting
Digital record-keeping using accounting software means you can move away from days spent fiddling with Excel graphs to report to your senior board.
In a few button clicks, business decisions and financial forecasting can be made in real-time thanks to the up-to-date information that’s readily accessible.
2. Improved Staff Efficiency
Staff efficiency may dip at first as they start to use the new financial software you’ve invested in for MTD. This will soon change to a visible improvement in faster processing and reporting due to tasks becoming streamlined within the software.
Your accountant will no longer have to spend days or weeks reconciling bank accounts with invoices and receipts for your VAT return. Accounting software links to your bank accounts to assist with this huge administrative task.
3. Reduced Costly Errors
The automation of accounts reconciliation and transaction records will also reduce the risk of human error that previously could have cost you thousands of pounds to rectify.
Translation of records from paper-based receipts to spreadsheets involves a human element of risk. One wrong decimal point can mess up entire VAT returns: with software helping out, this risk is significantly reduced.
4. Fast Auditing
Whether it’s HMRC, an internal inquiry, or a supplier query, auditing becomes a fast and easy process.
Instead of trawling through paper records and spreadsheets, your accounting software holds all data in one place. It’s easy to create custom reports or follow a transaction trail for quick and accurate audits.
In addition, changelogs record any data alterations, including the person responsible for the change. Errors can be traced and staff held accountable or provided with further training to avoid costly problems in the future.
5. Freedom of Software Choice
It may seem irritating that HMRC is not providing software for digital returns. This is actually a benefit for your business.
You’re free to choose software that fits your budget, accounting needs, and reporting requirements. You might want to choose a less expensive bridging app, which simply sends your digital records to HMRC, or an all-in-one accounting program that does everything under the sun.
Your freedom of software choice means you can adapt and upgrade as your business grows. Many advanced accounting programs offer opportunities to significantly improve your business efficiency by streamlining most operational processes.
Your investment in software can be written off as a legitimate business expense, too!
6. Accurate Tax Payments
Digital records and quarterly returns mean no more payments on account or estimated bills. You’ll know exactly how much you owe HMRC every 12 weeks.
You won’t be hit with the dreaded over-payment letter that demands immediate repayment. You also won’t face the worry of not having enough saved to cover your annual bill.
Cash flow will improve, as you won’t have to lock away savings for estimated annual taxes – especially when Income Tax and Corporation Tax become part of the scheme, too.
Ask an Expert About Your MTD Preparations
Making Tax Digital will help your business to succeed – if you lay the right groundwork first. The wrong software, a lack of understanding of the scheme, or unclear staff communications can all impact your success.
Our expert team can help you to prepare for MTD based on your unique business circumstances. From a fully-managed switch to answering simple MTD queries, we’re here to help.
Contact us today to find out how to make MTD work for your business.