Benjamin Franklin, an American Founding Father and inventor of the Lightning Rod, didn’t get everything right, but on one thing he was spot on – nothing in life is certain, except death and taxes.
Making Tax Digital (MTD) has snuck up on small businesses and as Ben said, it can’t be avoided. Starting with VAT in April 2019, soon all business tax affairs will be digital. This is a real issue for many small businesses as they are going to have to make some fundamental changes to submit their VAT. From April it has to be submitted directly from their Accounting software. Copying and pasting from spreadsheets or any system from April 2020 is not allowed – so businesses sales and purchasing systems must be linked to accounting systems.
Making Tax Digital has been carefully explained by HMRC. It will mean a change into a much more digital mindset for many businesses, but the benefits will be worth it.
- More speed and less mistakes – Every year, around 700,000 businesses miss filing their tax returns on time, although the figure appears to be dropping year-on-year as more people adopt digital accounting systems. The speed and accuracy of digital accounting systems means it’s easier to submit those returns on time and make sure figures are accurate. Keeping businesses away from those hefty HMRC fines.
- It’s good for revenue – Businesses who use 1 or 2 cloud systems (including accounting) often see around a 15% revenue growth over those that don’t. Businesses with 3 or more cloud systems regularly see a revenue growth exceeding 25%. This is because it reduces staff admin workload, allows time to be better allocated to growing the business, gives better insights into finances and helps you track payments and chase up the debtors.
How does an already stressed and harassed retailer make sure they get these benefits as they meet their tax commitments? Here’s some of the most important steps:
- Use MTD compliant accounting software. There is a comprehensive list on the Gov.co.uk site and includes popular names such as Xero, Sage Cloud and Quickbooks.
- Set up the software to capture the information required. Here’s a handy list of what needs to be captured for VAT.
- After April 2020 you’ll no longer be allowed to copy and paste information into accounting software, so sales platforms will need to be digitally linked to it too. Make sure information captured in the sales/stock management channels such as EPOS and eCommerce software is both rich enough to meet MTD requirements and is passed through to the accounting system.
- Choose cloud-based software that can be connected. A good system will allow other companies to add and extract the right data to keep you compliant. Then choose a connector, like Talisman Innovation’s TIDE, to link cloud-based systems together and surface the right data.
As SME businesses take up digital accounting it is estimated they could save around £17,000 per year, equivalent to getting 27.6 days a year back to focus on revenue-generating activities.
And when you head over to Pinterest to see how you can turn those old shoeboxes into handy desktop organisers, remember Ben also said: “You may delay, but time will not.” In this case it’s the HMRC deadline that will not wait.