From April 2019, UK businesses above the VAT threshold will be required to keep their records digitally, and submit VAT returns to HMRC using Making Tax Digital software.
Making Tax Digital for VAT signals the end of paper-based accounting, and in turn creates a very advanced tax system that will improve efficiency and ease of compliance.
Naturally, a change on this scale comes with uncertainty and new processes, but this type of digital transformation isn’t just about compliance. It’s part of a much bigger picture, in which we live and work in a fully digital world.
Logically, for small businesses, it can only be positive that they are able to get a better handle of their finances.
It’s a massive opportunity to increase efficiency, standardise processes, reduce errors and enable more proactive tracking.
By submitting tax digitally through cloud accounting software, businesses will gain real understanding and control over their data, which in itself will only improve business performance.
Our team of accountants are advocates for the use of technology in accounting and since our inception in 2013 we have been harnessing the power of cloud software to help drive our clients forward at a faster rate than their competitors.
Cloud technology is moving from a nice-to-have to a must-have: Research shows small businesses who use cloud technology are less likely to fail after their first five years of business compared to those who don’t implement it.
According to Xero’s Make or Break report, 88% of Xero customers are still operating after five years in the UK, compared to an industry average of 415.
With cloud accounting software like Xero becoming a necessity for Making Tax Digital, it’s natural an ever greater number of businesses moving to the cloud, so they too can benefit from access to real-time data, increased efficiency and better cash flow management.
Failure to move into such a system will, in time, become a potential weakness for businesses and could see them lose ground on competitors who do use it.
A paperless system means fewer costly mistakes: A tiny mistake in a financial ledger made at the beginning of the year can grow into a serious discrepancy over time that may not noticed until it is time to file a return.
This can be costly for both HMRC and the business itself, through lost revenue or fines incurred. Through digital tax returns, errors will be rectified faster and tax payments will become more accurate.
Making Tax Digital for VAT is the gateway to smarter technology adoption:Making Tax Digital will ultimately drive widespread adoption of digital technology, bringing new capabilities such as artificial intelligence and automation into the hands of many.
This means that they can spend less time on the books, freeing them up to focus on running their business. HMRC’s transformation from paper to digital is an enormous feat, modernising a legacy system that has operated for decades.
Once fully operational, Making Tax Digital for VAT will become the stepping stone for smarter technology to integrate in the future.
Xero is included on HMRC’s list of software suppliers supporting Making Tax Digital for VAT, following successful VAT returns using the beta version of Xero’s Making Tax Digital functionality.
Have you got a plan in place for Making Tax Digital? If not, get in touch with our certified Xero and Making Tax Digital experts about how we can help you be fully equipped for its introduction and get the greatest benefit from the UK’s new digital tax system.