Preparing for Making Tax Digital
With just about half a year left to go until Making Tax Digital goes into effect, it’s time to dot the i’s and cross the t’s. Transitioning to a digital system may seem daunting at first, but it provides all sorts of unique benefits, advantages and opportunities for businesses to modernise and improve their services. While it may seem like an extra administrative burden, there are plenty of upsides, like improved financial reporting, cash forecasting, cloud integration, and better financial management.
Don’t worry if this all seems a bit complex – in this blog, I will outline how you can prepare for Making Tax Digital and how you can make it work for your business.
Quick Overview: What is Making Tax Digital?
Making Tax Digital is HMRC’s way of collecting more information and insights about your business. These will be collected on a quarterly basis, at the same time as you submit your VAT return. HMRC is looking to get a more comprehensive view of your business, which will allow them to have regular reports on incomes streams, profits, and expenditures. If you want to learn more specific information about Making Tax Digital, check out our detailed ‘all you need to know’ blog.
Making Tax Digital Compliant Software
Being compliant with Making Tax Digital all starts with a willingness to lay good foundations and implement good procedures. The main benefit is that you will have more information and data on your financial performance, which will allow you to put better forecasts in place and make informed business decisions.
Previously, you might have gotten away with doing your accounts and books at the last minute. Now, with quarterly deadlines, you’ll need to ensure that you have the right systems and resources in place to make sure you do your books regularly. This could be at the end of each week, but at the very minimum, it means that reports need to be submitted every 3 months.
To start off with, you will need a software solution that is compliant with HMRC’s regulations. For an overview of these, please read over this article by HMRC, detailing exactly which software packages you can use. This software could be in the form of a cloud or desktop accounting solution, giving you the flexibility to decide just how ‘technical’ you want to get (hint: it can get very technical). Plus, collaborating with your accountant is actually much easier in a cloud-based system, as you will be able to see all your stats and financial information in real time. With cloud based systems you can also add on cash forecasting functionality that provides you with access to even more management information.
How important is accuracy?
As with all reports and documents submitted to HMRC, it is vital that you get your figures right. Each quarter needs to be accurate, as any fluctuations or anomalies mean that HMRC will be more interested in a business records check. Then again, this also works both ways. By having a reporting network that is constantly updated, you will also have a more accurate view of your outgoing and incoming funds. For example, you will have more visibility of what money is still due from clients or suppliers, while at the same time understanding what your own expenditures are. If you’ve got a supplier who claims they’ve already paid their invoice, it’s a simple matter of checking your phone or software to get the latest update.
There’s no time like the present
Making Tax Digital will go into effect in April 2019 for VAT registered businesses, whereas non-VAT registered businesses have an extra year to prepare. However, we’re convinced that by getting started earlier, you can adapt to your new systems and learn how it all works. The sooner you get started the better. Leaving it to the last minute means you will end up with a system you and your staff don’t understand, which can lead to mistakes. Defacto-FD can help you with setting up your Making Tax Digital infrastructure and can advise you on what steps your business needs to take to be compliant. Furthermore, we can also help train you or your staff and will be available should you have any questions in the future. Contact us for more information.