New research has revealed that approximately 346,000 small businesses in the UK run the risk of facing Making Tax Digital fines as they falsely believe to be compliant with HMRC’s new digital tax regime, when in reality, they are not.
The research, conducted by a leading cloud accounting software provider, unveiled that despite 89% of businesses confirming that they were aware of Making Tax Digital, a huge 46% of those surveyed incorrectly believed they complied with the new rules.
To explore this issue further, we’ve enlisted the services of our Associate Director and accountant, Riaz Kala, who is an established expert in cloud accounting software and is spearheading our clients’ adaptation to Making Tax Digital.
Perhaps, before continuing this article, you would like to contact us regarding your own compliance with Making Tax Digital. Our team are on hand to help you avoid HMRC fines.
One of the big points of contention we have encountered with Making Tax Digital is that businesses believe because they use cloud accounting software to manage their accounts, they are automatically compliant.
Unfortunately, this is not the case and as a consequence you can see the sheer number of businesses that have been lured into a false sense of compliance.
A key point of compliance in Making Tax Digital is the use of the old Government Gateway accounts.
For example, if you migrated your accounts to an online software this time last year, you could still submit a VAT return through the Government Gateway. However, the introduction of Making Tax Digital has rendered the old Government Gateway redundant and it is no longer acceptable to submit VAT returns in that way.
Under Making Tax Digital, businesses must be using a compatible software which securely transfers and receives data from HMRC without having to manually fill information on a portal website like Government Gateway.
Unfortunately, the list of reasons for oversight on Making Tax Digital compliance does not end there.
In fact, another pit so many business have fallen into applies to businesses who have compatible Making Tax Digital software in place.
Some businesses are guilty of assuming that, once they have integrated a compatible software into their accounts, they are automatically registered for Making Tax Digital, too.
This is not the case.
Once a business has adopted the correct accounting software, they must ensure that either on their own accord or through their accountant, they register for Making Tax Digital online. Otherwise, they run the risk of facing fines down the line.
It’s not uncommon for businesses to be hesitant or resistant over change, particularly to something as encompassing as the tax system.
We understand it from an owner’s point of view - running your own company is a full-on, relentless challenge that demands your entire attention. When something like Making Tax Digital comes along, the initial adaptation to change feels like another ball to juggle.
Unfortunately, if you drop that ball, you’ll need to pay for it.
But for all the teething issues that Making Tax Digital may bring your businesses, in the long term they will be heavily outweighed by the benefits of integrating and utilising cloud accounting software in your business.
As one of the UK’s leading online accountants, our team are experts in the use of accounting software and as one of Xero’s Platinum Partners, we are best placed to help you reap the entire reward of using cloud accounting software.
Along with streamlining processes and freeing up more time for you to focus on your business, the right guidance and the right software gives you a real-time view of your financial position, automates digital records, invoices and receipts, and through data provides actionable insights that can help your business boost its performance.
If you would like to speak with our experts about Making Tax Digital, please get in touch and we would be happy to discuss the best way forward for you and your business.