Making Tax Digital is the United Kingdom government’s flagship programme to make tax accounting easier for businesses and individuals such as sole traders. As you might guess from the name, it does this by legislating the digitalisation of tax data and submission.
Many businesses faced with complying with Making Tax Digital need to take some time to assess their current business needs, how these might change in the near to medium-term future, and figure out what technology they’ll need to comply.
The key driver behind Making Tax Digital is to move businesses, no matter their size, to some form of digital accounting. Making Tax Digital is seen as not only a major efficiency win for the enterprises concerned, but it also enables the government to streamline the tax systems that are in place today. In an ideal world, this would mean an online tax account for every business and self-employed person, for fast and efficient tax filing.
However, how businesses use IT can vary significantly, particularly as access to certain technologies is not always possible. Adopting Making Tax Digital may be a significant challenge for some enterprises, while for others it will require little more than a few tweaks to their existing systems. The vast majority of companies will, however, fall between these two extremes.
It because of this that calls have been issued to delay the rollout of Making Tax Digital, currently expected to arrive in April, something that the United Kingdom government has seemingly rejected.
Tax Shouldn’t be Taxing
How your business’ digital accounting systems will evolve will, of course, depend on many factors. Your company may already use some form of digital accounting software, so the question may be, does this application need to be upgraded to be compatible with Making Tax Digital?
With research from Spiceworks revealing 52% of businesses are still using Windows XP, this doesn’t bode well for small enterprises keeping their accounting applications up-to-date.
There is also the matter of training and competence with the applications, especially if these are new to your company. It won’t be possible to instantly use any of the cloud-based applications without a period of training. Factoring this into your transition period is vital.
Small business owners are also concerned that their level of technical knowledge won’t be good enough to avoid what could be costly mistakes when choosing new digital accounting systems.
Peter Ford, public sector industry principal at Pegasystems, says that his company is working with HMRC to develop their front facing services.
Your business’s current level of technical knowledge will determine how complex supporting Making Tax Digital will be for your company. Small businesses, in particular, will have to potentially make the most radical changes, as until now they may have simply completed their own self-assessment tax form. In the world of MTD, moving to a hosted accounting service will be unavoidable.
Understanding your Objectives
Mark Taylor, a technical manager in the Technical Innovation wing of the Institute of Chartered Accountants, explains to IT Pro that businesses need to assess their requirements before choosing an Making Tax Digital software provider.
As with all software moves, pitfalls are almost certainly going to be encountered, yet, given the fierce market competition that is developing ahead of the April deadline, vendors will be trying to make the onboarding process as simple as possible.
Approaching the transition to digital accounting and tax filing needs all the due diligence you would use when choosing any new services for your business. Today, the cloud-based accounting market has continued to expand and evolve. Stalwarts of business accounting such as Sage have been joined by newer services such as FreeAgent and Crunch. What they all attempt to do is simplify the accounting and tax filing processes all business must comply with.
As each application or service is different, one size doesn’t fit all. Take your time to talk to other businesses in your sector. Case studies and information from your business’s trade associations can often shed light on the shortcomings of some applications or services you may not be aware of. Use this knowledge to make sure you purchase the right digital services to comply with Making Tax Digital.