The digital transformation of taxation in the UK is fast approaching. The Government approved “Making Tax Digital” initiative is set to revolutionise the way UK company tax is recorded, assessed and reported. With accounting software leaders like XERO and QuickBooks leading the way in MTD software tools, business owners now need to think about how to prepare their company’s for this digital transformation.
Business owners must act now to be in a stronger position for when the changes come into effect. Take a look at these tips as a starting point to get your business ready for MTD and avoid the problems that may arise by leaving it to the last minute.
What is it?
Making Tax Digital is an HMRC drive that will help transform the UK tax system and eventually bring an end to self-assessment. The initial aim is to make tax administration more effective and efficient for taxpayers, through the implementation of a fully digitised tax system by the year 2020. This will also reduce the HMRC’s costs for managing tax matters. The changes apply to a wide range of taxpayers, including business owners and self-employed professionals, who will then be able to use the new tax system to maintain digital records through compatible accounting software platforms like XERO and QuickBooks in a more effective and innovative manner.
Educate yourself & your team
As the business owner, it’s wise for you to prepare yourself and your staff by researching how digital tax will work. Start off by learning and understanding the basics, so you can then begin to pass on information and answer any questions your team may ask you. The first change to make is the filing of your first VAT return after 1/04/2019. Other taxes will follow at a later date.
If you’re a sole trader, you’ll need to learn about making tax digital yourself and if you need any guidance, you should approach a specialist to help answer any questions or proof any of your initial interpretations of MTD. If however, you run a larger company, you can ask other staff members to research making tax digital, put the topic on their priority action list and then get them to present the implication to you and the rest of your wider team.
Educate your clients
Many business owners believe that the transition to digital tax will be disruptive for their business activities. This is partly true as business owners will know far less about accounting and tax in comparison to specialists in this area of expertise. As this will initially only impact VAT returns, ensuring you have software that can file returns digitally is all you need to do immediately.
See www.gov.uk/guidance/software-for-sending-income-tax-updates#Dev for HMRC approved software suppliers. Speak to your finance team, accountant or tax advisor as many legacy accounting systems will not be compliant, hence you will have to make some changes.
Assess your systems & resources
Most companies will fall somewhere between the two extremes of still keeping all their records on paper, legacy/spreadsheet systems and having a fully MTD embraced accounting software package that is already used. As your company will be submitting taxes online, you will need a suitable software platform. HMRC will be releasing a platform to enable business owners to automate their taxation. However, since this is still in the development stage, it would be wise to better prepare your business with platforms that have already modified their systems for making tax digital. Accounting software’s like XERO & QuickBooks are ready for April’s launch and will help to automate your tax reporting.
However, MTD accounting software will do so much more than just your company’s taxes. Modern day software platforms are often in the cloud, multi functional and will come with additional features that will help to improve your company’s financial management and reporting. With features like KPI management dashboards, mobile invoicing and forecast analytics, updating your company’s software resource will prepare you for MTD and produce better insights and control over your financials.
Time waits for no man. Making Tax Digital will be here before you know so prepare your business and act fast. Start thinking about how this new transformation will affect your company, team and business. Do not leave this to the last minute. Speak to one of our experienced finance directors or financial controllers for expert advice on how to make your company MTD ready.