Last post: Feb 28, 2019
On the 1st of April 2019, Making Tax Digital for businesses (MTDfb) will become mandatory for VAT-registered businesses with an annual turnover of £85,000 or above. The MTDfb scheme ensures that business owners, accountants and bookkeepers keep digital records of & submit VAT returns using software compatible with the scheme.
Despite the urgency of businesses working to get their accounts resolved, the question tends to be 'How do I make tax digital?' whilst missing the 'Why do I need to make tax digital?'.
And it's a good question to ask. Despite the forthright answer being 'Because HMRC has made it mandatory', there are many benefits to UK businesses of taking the big step into digital accounting.
More accuracy and organisation with your business's finances.
Although a running joke that some businesses keep their receipts in a shoe box, it is not entirely inaccurate. A recent survey from the UK2000Group found that 16% of small businesses still use 'shoe box bookkeeping' as a way of managing their receipts and 23% use paper records.
Leaving a paper trail of VAT receipts can lead to a build-up of repayments owed and errors in return. The initiative by HMRC to make this digital keeps your business's tax position as close to real-time as possible, ensuring that you know exactly how much tax is owed without having to wait for the year end.
Automated accounting to save you time.
With MTDfb becoming mandatory, you'll start to (if you haven't already) use bookkeeping software that automates and categorises your business's income and expenses. HMRC recognised software such as Xero and Quickbooks include useful tools that you can benefit from using on top of meeting the MTDfb requirements.
Xero offers services such as mobile invoicing, automatic reminders and payment scheduling whilst Quickbooks provides services such as cashflow forecasts, multi-currency invoicing and remittance advice.
All of these services offer opportunities of better financial management allowing you as a business owner to go further with your funds.
Easy and frequent access to your business's finances.
Keeping a track record of your business finances is one advantage, but being able to actually access it at any point of time from your computer or mobile ensures you're up-to-date and comfortable with where your money is going.
Improving your accessibility reduces the risk of surprise bills whilst also keeping you informed.
Less communication with HMRC.
The more automated the process, the less amount of time you'll have to spend speaking to HMRC and sending over information that they already have. Being able to provide a digital record of your accounts to HMRC through the mentioned software improves accuracy of information. Thus reducing the amount of time spent shouting over the phone.
You can read an overview on the topic of Making Tax Digital for business via the Gov.UK website: https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital
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