With Making Tax Digital aiming to restructure the entire tax system, businesses all around the UK are getting ready for some changes. If you are a business owner in the United Kingdom, you need to be familiar with Making Tax Digital and how it will affect you. This article will talk about what MTD is, what new requirements it will create, and how online accounting will help you stay compliant with the new rules and regulations.
What is Making Tax Digital in Accounting and Bookkeeping?
Making Tax Digital is a government initiative to digitise the UK’s tax system and simplify the way tax is collected. The main idea behind this reform is to give HMRC more efficient access to businesses’ financial records and to establish HMRC as the most technologically advanced tax administration in the world. This initiative aims to eliminate annual tax returns, replacing them with quarterly digital updates to HMRC.
What are the requirements of MTD?
In order to transform the entire tax procedure by 2020, MTD mandates certain requirements for businesses.
– Quarterly reporting
Along with digitalising the tax system, MTD also seeks to end annual tax returns. With MTD, businesses will be required to update their financial data (income and expenditure) in the MTD interface every quarter. HMRC will then calculate their expected tax, which will be displayed in their digital tax account. Quarterly submissions will be due a month after the end of each quarter.
– Going digital
One of the main objectives of MTD is to ensure that businesses keep their records digitally. This move to digital record-keeping is intended to eliminate the errors associated with pen-and-paper accounting. Businesses can still use spreadsheets, as long as they are integrated with an accounting program so that their updates to HRMC can happen without errors.
How does accounting software help with MTD?
MTD requires all businesses to use an accounting tool. The transition to MTD is expected to be smoother and easier for businesses who are already maintaining digital records of their business data. While MTD doesn’t require businesses’ accounting software to be cloud-based, it definitely makes things easier. Online accounting simplifies the transition to MTD by reducing manual data entry, keeping your records where they’re always available, and providing a platform for collaboration.
– Minimal manual intervention
While a lot of business owners are skeptical about moving to the cloud, an online accounting system will provide you with more powerful tools and features to manage your records while meeting the MTD requirements. As quarterly reporting becomes mandatory, you will need to spend more time on bookkeeping, and having a system that works in real time can save you hours of manual work. An online accounting system that integrates with the HMRC interface can simplify your quarterly reporting and cut down on your manual data entry.
Accounting software makes it easy to spot errors when they happen and rectify them immediately. When updates happen in real time, businesses can know how much tax they owe and budget accordingly, instead of having to wait until the end of the year to find out.
– Access wherever you go
With quarterly reporting comes more frequent deadlines, and you need a system you can access on the go. Suppose you are on a business trip and you need to update your financial records. With online accounting software, no matter where you are, you can sign in on your smartphone or laptop to access your business finances, update your records, and send your data to HMRC.
– Work closely with your accountant
If your accountant manages your tax reporting, online accounting software offers a more effective platform for sharing your data than desktop accounting. Just add your accountant as an additional user with role-based access. They can then view and update your records from anywhere, so you’re always ready to send your reports to HMRC every quarter.
Your accountant would be the first to tell you to keep cost in mind when you’re considering the switch to digital accounting. The good news is that a good online accounting software doesn’t cost much, and is often even more affordable than desktop accounting. Take a little time to look around the market and you’ll have no trouble finding an online accounting solution that meets your needs.
The benefits of digitalisation are vast. With or without MTD, businesses will eventually move to accounting software and cloud accounting. But with MTD speeding up the process, it is important for businesses to plan and prepare for the switch to digital accounting now. From maintaining daily records to sending your tax reports to HMRC, online accounting just makes for the smoothest ride.