It feels like a lifetime, but the moment is finally upon us when HMRC realises its goal of ensuring that the UK becomes one of the most digitally progressive tax services in the world.
No matter what their turnover is, all VAT registered businesses have to have signed up for the Government’s Making Tax Digital, submitting their forms via compatible software.
Accountants have played a vital role in getting businesses ready for this day, with accountants spending around seven days on average getting clients MTD compliant.
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Much of this time has been spent researching and deploying the correct finance software able to modernise businesses and make tax submissions easier, faster, and more accurate.
But those that aren’t utilising automation in this process are missing a trick, as mistakes can happen, no matter how good your accounting team is.
Why was it brought in?
In short, MTD shouldn’t be a surprise for businesses, as it has been around for a little while now, after being launched for those businesses with a taxable turnover above the VAT threshold (£85,000 per annum) in April 2019.
MTD was introduced to streamline tax administration, making it much more efficient and user friendly to help businesses reduce errors, saving the business and HMRC both time and money, which opens up opportunities for businesses to free up time to reduce their workloads and improve agility so the business can focus on delivering the products, or services it does.
The biggest change with MTD is that you can no longer upload your tax returns by Extensible Markup Language (XML), or by printing and sticking a stamp on your accounts and sending them off to HMRC, with love.
Instead, you’ll need to keep digital records of your finances in MTD-compliant software, that links directly to HMRC, or use bridging software to connect your spreadsheet to HMRC, so although businesses can continue to work with their existing spreadsheets, they will need to invest in MTD bridging software to ensure connectivity with HMRC, via their application programming interface (API).
What are the current issues surrounding MTD?
It is important to note that HMRC are not providing their own software for MTD, mainly due to the fact that the task is simply too large for a sole developer to manage. So, this means that HMRC are relying on a number of approved MTD software developers to deliver the goods, as well as training the support.
Which does place the onus upon service providers to support businesses, as well as businesses putting their faith and of course money in the hands of providers.
Another potential note of concern, which is easily rectified with knowledge and of course software, is to ensure that freelancers have the same information and support available as business with staff who are able to support the change.
After all, freelancers will likely not have accounts’ departments that can manage this for them, and they may not have their own external accountants. Although, MTD for Income Tax Self Assessment is due to launch in April 2024, so freelances do have time on their side.
Of course, by 1 April 2022, all VAT-registered businesses (those with a taxable turnover below £85,000) have to be MTD-compliant and then in another two years’ time (April 2024) it will be mandatory for the self-employed, as well as those with property income to also be MTD compliant. Although, this will only be applicable to those with self-employment and gross rental income of more than £10,000,
Then, and finally, in three years’ time (April 2025) Finally, from April 2025, MTD ITSA will become applicable to general partnerships, who have turnover exceeding £10,000.
However, the old saying still applies that ‘old habits die hard’, as does ‘ those who fail to prepare, prepare to fail. The information, system and support is out there.
What are the benefits of automation for MTD?
For the majority of businesses, by automation of financial operations, sorting tax will be easier to get right and harder to get wrong. This opens up all sorts of possibilities for businesses, in terms of keeping records right up to date, having a better view of their finances, and allows for processes to be seamless, whilst guaranteeing compliance with all relevant legislation.
For example, digital bookkeeping gives instant access to your records, allowing you to view them in real time, helping to forge a live relationship with your accountant or bookkeeper, and shows you your financial position visually at a glance
With business owners having a clear view of how their business is performing, in a real time, they can be helped to stay on top of your cash flow – this helps businesses focus their attention on what they do best, running their business.
Not only this, but by getting to grips with MTD, businesses can gain confidence which may kickstart their digital transformation journeys, but businesses should not underestimate the changes that are involved and should seek advice from reliable and trusted software providers, as these relationships are essential as both businesses and software providers battles the MTD revolution.
The deadlines will inevitably arrive, and then pass, but businesses and software providers alike must persist in working together so that nobody is caught in as this new age of accounting becomes the norm.
By Mark Blakemore, CFO at Compleat Software
