With the 1 April start date for Making Tax Digital (MTD) fast approaching, it’s worrying that, according to figures released by the government last weekend, only 4% of businesses have signed up to the pilot scheme.
HMRC’s MTD initiative has some strict requirements for businesses with turnover above the VAT-registration threshold (£85,000). Those affected will need to store their VAT records digitally. They’ll also need to file their VAT returns to HMRC using ‘functional compatible software’ – software or spreadsheets that can connect to HMRC via an application programming interface (API).
The first question for any business on this journey is therefore – are my current accounting systems MTD compliant? According to our recent survey, more than 60% of respondents didn’t have compliant software and would need to upgrade or change.
However, it’s the businesses that are looking beyond mere compliance and seeing the opportunity that this change presents that will thrive in the long run.
We‘re working with businesses who are seizing this opportunity to look at their current internal processes, ways of reporting and sharing of information with key stakeholders. Through the use of cloud technology they are able to automate and streamline processes including banking, invoicing and management/financial reporting.
By harnessing the power of these tools businesses are able to remain focused on their core activities and adding value to customers.
As most businesses face some form of software or systems upgrade in order to meet the MTD requirements, it’s vital to consider how your business is currently calculating VAT and filing its returns, then assess the options open to you.
Some questions you’ll want to consider:
- Are records held digitally? – physical storage can be replaced by electronic copies directly integrated with cloud accounting systems
- How many systems are required and are they integrated? – cloud accounting systems have many app add-ons which can provide a fully integrated and streamlined finance and accounting operation
- What reports are used to compile the VAT return? – VAT returns can automatically be produced, reviewed, and submitted to the new HMRC portal with cloud accounting
Beyond compliance with the impending MTD legislation, cloud accounting can offer many added benefits to businesses. It provides the ability to automate financial processes and benefit from access to real-time information, anytime, anywhere on any device. This will improve sharing and collaboration on a potentially global scale, and with greater security.
Using this type of technology you can access valuable insights and alerts for the business, including: dynamic stock control; automated credit control; cash flow forecasting based on live data etc. Software updates are automatically rolled out from the system provider, so you’re always using the most up to date versions and the cost associated with continual upgrading will therefore be minimised.
The Making Tax Digital requirements may initially seem like a burden, and with Brexit on the horizon, one that businesses might feel they could do without. But the fact is, in less than six weeks, the new legislation takes effect – and HMRC’s future plans include further digitalisation of the tax environment.
So why not embrace the entrepreneurial mind-set that helped start and grow your business and not consider the burden of compliance, but the opportunity that digital transformation can bring your business. The future is digital, don’t be left behind!