Though Making Tax Digital is not here yet, small businesses should consider switching to using online/cloud accounting software so that they are ready for when the new regulations are fully introduced.
The scheme might seem like it’s far off in the distance, but in actual fact there are few accountants ready to work with small businesses on preparing for the new scheme, and even fewer businesses who understand how the new scheme will impact them.
From the consultation documentation available HMRC has no plans to provide their own free software, which is going to force the majority of businesses to obtain a software which will be suitable for business use.
At this stage, this is a tricky question to answer as it will largely depend on the type of business.
Each business will have to decide based on their personal circumstances – SMEs, for example, will be in a position to shop around for software already out there but larger organisations may require more bespoke software to suit their needs.
For now, initial steps towards preparing for Making Tax Digital can come through understanding your business’ current situation.
Some businesses in the UK have had digital accounting records for several years before the idea of Making Tax Digital was even introduced to the public.
The move to Making Tax Digital for the businesses and firms which are already using software for their accounting will be quite easy.
The government has already listed recommended software for digital record keeping in order to ensure that business owners in the UK are not coaxed into buying software which isn’t required.
For the businesses which already use software for their bookkeeping, the shift to software which is compatible with Making Tax Digital can easily be done by software vendors who have constantly been in touch with the HMRC.
These software vendors fully understand the requirements of Making Tax Digital and will be able to propose the best and most efficient solutions for businesses which already use software and have digital accounting records.
Since the complete implementation of the new system is likely to take a few months, large businesses can be expected to be a part of Making Tax Digital during the final phases of its implementation.
Additionally, all businesses will be required to report their returns quarterly instead of once a year. It is also required that the software being used must have security features, along with the ability to manage new VAT schemes.
Despite the massive PR drive by the most notable cloud accounting software providers, the uptake of online accounting systems by SMEs in the UK has been on the slow side.
In fact, according to our own research, approximately 1.2 million small businesses have elected to avoid digital accounting for running their internal accounts.
As an incentive for these businesses, HMRC will most likely make free software available for these businesses to digitise all of their accounting processes.
What’s more, these types of free software will also be updated automatically in order to ensure that there are no problems with the implementation of the new system.
Being the favorite types of applications of accountants across the globe, countless bookkeepers throughout the UK were concerned about how the new system will affect the use of spreadsheets.
Fortunately for many, it has been confirmed by the government that businesses will still be allowed to use spreadsheet applications for managing and organizing their data.
There is, however, one simple requirement: the spreadsheet applications being used by businesses need to be in line with the requirements of Making Tax Digital.
This means that the spreadsheets being used by businesses need to have features which can make the implementation of Making Tax Digital simpler.
One example of the features which need to be included in the spreadsheets or software being used by businesses is that they should have an option of quarterly reporting to the HMRC.