It seems to have gone a bit quiet on Making Tax Digital lately. Unless you have been directly affected by the new rules this year, you might have forgotten about this huge shake-up in tax administration.
For now, the changes apply to organisations with a taxable turnover above the VAT threshold. It involves keeping financial records digitally and submitting VAT returns to HMRC quarterly.
But from 2021 onwards, HMRC is looking to widen the scope of Making Tax Digital. It might seem like a way off, but if you’re still using spreadsheets and paper-based filing, you will need plenty of time to research and implement a system which works best for your business.
For some, Making Tax Digital sounds like another administrative burden they could do without. But once you get going, there are all sorts of business benefits to be had. For example:
Real-time financial information: With a digital system, you’ll have a clearer picture of your finances throughout the year, rather than having to wait until your tax return to see how your business is performing. And there won’t be the lag between reporting information and paying your tax liabilities, which reduces the temptation to spend money which you’ll have to pay back later.
Less paperwork: You can cut down on printing and storing piles of paperwork, receipts and other documents, as you can enter the information online and take pictures of receipts with your phone (always check what physical records you need to keep).
The end of the tax return: For small business owners, a digital system will eliminate the dreaded annual tax return, as simpler updates will be made to HMRC more regularly. And as your finances will be more up to date, it should make life a whole lot easier.
More accurate records: Going digital will mean you are less likely to make mistakes than with a dodgy formula in an Excel spreadsheet, so you’ll always know how much tax you owe.
Easier bookkeeping: Not only can you snap a picture of your receipts, you can map your mileage and link up your bank account, so it’s really easy to reconcile expenses. Once you get into the swing of it, you’ll find bookkeeping much easier to manage.
More time to focus on important tasks: One of the best outcomes of Making Tax Digital is a more efficient system which frees you up to concentrate on the things you do best.
So, if you’re not already using accounting software, now is the time to start thinking about it. There are some key players in the market which are surprisingly affordable, such as Xero, QuickBooks, FreeAgent, Sage etc. and it’s important to explore all the options to make sure you get the most out of the investment.
Switching to a new system can be a bit overwhelming and time consuming, which is why I work with organisations and individuals to manage this for them. My preparing for Making Tax Digital package includes the following steps:
Meeting up with you (and your accountant if required) to discuss your current financial systems and processes, and to understand your tax liabilities; what you need most help with; and which software features would be most useful for your business.
I explore software options on your behalf and make recommendations based on your needs and budget.
Once you’ve chosen the right software for your business, we go through your finances in detail – including mapping regular incomings and outgoings.
I set up the new software for you and transfer any information that’s required – including photographing receipts and inputting details which will save you time in the future.
We get together to go through how to use the system, including exploring the reporting features to help you manage your finances more effectively.
I work through your paper-based files to consolidate what you need to keep and to de-clutter your office!
It’s about taking the hassle out of getting you up and running on a new system and making sure you know how to use it properly to get the biggest benefits for your business. Simple!
If you are procrastinating about Making Tax Digital because you’re not sure where to start – then please drop me a line and we can go through some options.
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