Home Technology Making Tax Digital 2022: What do businesses need to know? 

Making Tax Digital 2022: What do businesses need to know? 

Mark Blakemore, CFO at Compleat Software

by uma

 

From April 2022, every small business which charges VAT will have to file accounts through the HMRC Making Tax Digital (MTD) scheme, which first launched for those businesses with a taxable turnover above the VAT threshold (£85,000 per annum) in April 2019.

There are many businesses which this new deadline won’t affect, as many have already put in place the systems, processes, and people in place in order to comply with MTD.

However, there are plenty of businesses that these new measures will strike fear into, who will be asking questions like: “What software do we need?”, “Do we have this already?” and “What are the implications for non-compliance?”

Those concerned needn’t worry about long-term implications, however, as the benefits of using MTD software speak for themselves, with 69% of businesses reported experiencing at least one benefit, including submitting returns faster, while 67% said it had reduced the potential for mistakes.

Nevertheless, those businesses still working with manual processes will always open themselves up to mistakes, as well as spending an unnecessary amount of time submitting their tax returns. 

 

What is the software helping companies become MTD compliant?

It is important to note that HMRC will only accept VAT returns sent using approved MTD software, unless your business is legally exempt from doing so. 

This means you’re going to have to get to grips with what you need and what’s out there.

For those business mavericks who perhaps think that the old trusty excel spreadsheet may still cut the mustard, unfortunately, HMRC requires a number of essential digital records to be kept, so whilst your business can of course use a spreadsheet to calculate and map transactions, and pull what information HMRC require, they’ll need to utilise compatible ‘bridging’ software to send to them, so why spend time manually inputting, when software can do everything for you?

 

Digital accounting software seamlessly pulls information from businesses’ digital records to submit returns, saving time that can be better doing what you do best, running your business. 

Every business is of course different, with specific needs, However, there are four key areas of functionality businesses need to look for in their software choice, it should:

  • automatically calculates what tax, including VAT and payroll, is owed 
  • pull all transaction data directly from your systems i.e. bank account, 
  • update transactions daily to keep an on the minute update of finances 
  • allow employees to upload digital records of paper receipts using a smartphone, or tablet 

 

How can automation help with this process? 

For the majority of businesses, by automation of financial operations, sorting tax will be easier to get right and harder to get wrong. This opens up all sorts of possibilities for businesses, in terms of keeping records right up to date, having a better view of a businesses’ finances and allows for processes to be seamless, whilst ensuring compliance with all legislative processes and procedures.

For example, digital bookkeeping gives instant access to your records, allowing you to view them in real time, helping to forge a live relationship with your accountant or bookkeeper, and shows you your financial position visually at a glance

With business owners having a clear view of how their business is performing, in a real time, they can be helped to stay on top of your cash flow – this helps businesses focus their attention on what they do best, running their business.

This is not just a compliance exercise to appease HMRC though, this should be embraced by businesses with open arms, as it brings with it the chance to free up time to reduce workloads and improve agility so the business can focus on delivering the products, ro services it does.

 

It also can be seen as the perfect platform for businesses to jumpstart their digital transformation journey. 

What does the future for MTD look like?

As 2022 advances, so does the technology and automation landscape, which dovetails with HMRC’s MTD digitisation of the UK’s tax system. What this does is pave the way for digital approaches for business processes to become the norm, which gives business owners the chance and opportunity to win time back, as well as allowing them to have more time to invest in their business.

This also has implications for automation and the digitisation using less energy, less paper and resources. Meaning businesses can reduce their energy bills through printing, as well as using paper 

 

There are however the inevitable teething issues and resistance to overcome before all businesses ensure their MTD compliance. The biggest question is are businesses ready and willing to accept MDT? To quote an old saying: “Old habits die hard.” and with an estimated 120,000 businesses letting the initial 2019 MTD deadline slip, it may be a safe bet to say that the latest deadline may see a similar reaction.

Here there is a clear onus placed on service providers, as they hold the key to providing the information, security and assurance to businesses as to how software and systems can provide the key information to support businesses on their MTD journey and more broadly, their digital transformation journey.

 

As the deadline looms, it is imperative that businesses take time and effort to research what software is available to support them and don’t be afraid to ask questions and be bold as they stare at the future of paying their tax. Businesses and service providers must work together as a new era of accounting arrives on the scene. 

ARTICLES FOR INSPIRATION:

 

TARGET PUBLICATIONS:

  • Purchase to Pay Network
  • Finance Digest
  • Director of Finance

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