Taxation is a tricky process, to put it mildly. So it’s not surprising that HMRC is in the process of digitising a lot of the systems involved in managing it.
The Make Take Digital (MTD) campaign has wide ranging implications for businesses of all sizes. And for smaller organisations, the impact it has could be especially significant.
If MTD has left you scratching your head, here are a few things you need to know to prepare your small business for the changes ahead.
Although the amount of tax which remains unpaid is at a lower level than ever before, it is still estimated that this costs the country around £9 billion a year. This means that there is a major incentive for HMRC to invest in overhauling its systems and doing more to combat tax avoision and evasion.
In theory this should also benefit businesses of all sizes in the long run, even if the short term result will be that a lot of firms are forced to modernise their approach to accounting.
The prospect of dealing with a steep learning curve is justified by the advantages that will come with digital tax services in the future.
The first thing to note is that MTD is only going to apply to firms that are VAT-registered and generate annual turnovers of at least £85,000. So for sole traders and other businesses that do not meet this minimum requirement, there is not currently a need to take action.
It is also worth pointing out that the effect of this shift will also be felt by accountants who are responsible for handling the tax affairs of impacted organisations. And if your client base includes multiple firms that fall into this category, then the scale of the challenge posed will be greater.
Details of MTD have been published well ahead of the point at which it will be rolled out nationally. This will take place on the 1st of April 2019; the start of the tax year and the dawn of a new age for this essential aspect of operating a business in the UK.
This means that there is still plenty of time for small firms to get their act together and prepare for an all-digital approach to submitting returns. But this window of opportunity is closing fast, so it is best to make changes sooner rather than later to avoid being caught out.
Quarterly Return Submissions
The main change that MTD will bring with it is the requirement to submit tax returns once a quarter, rather than annually.
This will have an impact not just on the way that your business handles its accounting, but also on the way that clients balance their books. As such it is a good idea to digitise your own accounts and also alert customers to any policy changes you choose to make, especially relating to payment scheduling.
By increasing the frequency of tax return submissions, HMRC is ensuring that small businesses and accountants do not have to go through a mad rush at the end of each tax year to get everything in order.
Instead this process will become regular and regimented, while also benefitting from a more straightforward submission process which is all handled online, with no physical paperwork involved.
Potential Problems & Suitable Solutions
As mentioned earlier, small businesses are going to have to get used to a fresh approach to tax that is mandated in the MTD scheme.
This will bring challenges with it that need to be overcome. Thankfully there are ways to prepare effectively, without leaving anything to chance.
Relying on spreadsheet software to collate and track information on sales, invoicing, expenses, bills and other key aspects of your business’ financial affairs will no longer be viable. Moving away from paper documentation will also be essential for businesses that are even more entrenched in the practices of the past.
This is where a cloud-powered solution like Smarty Software can be particularly helpful. It allows small businesses and accountants to work together within a single, connected platform, as well as letting users to deal with tax return submission in a way that complies with MTD.
There has never been a better time to digitise your accounting and tax management, so don’t delay in making a change.