And, as of April 2019, it's now mandatory for your VAT-registered small business to sign up to the Government's Making Tax Digital (MTD) scheme.
But why is tax moving over to a digital system? And where's the value in you upgrading your systems to take full advantage of this switch to digital?
Here's our lowdown on why becoming a digital business is about more than just changing the way you submit your tax returns.
What's Making Tax Digital all about?
Our everyday lives have gone digital. We store our photos digitally, we listen to music in a digital format and we carry out digital banking from a mobile app. Well, the same digital revolution is taking place in the business world – particularly in the areas of finance, accounting and tax.
Making Tax Digital is the Government's ambition scheme to move all business taxes over to a digital format by 2020 – starting with Making Tax Digital for VAT and digital VAT submissions. And to be MTD-ready, you're now required to do three key things:
- Sign up to the Making Tax Digital scheme – working closely with your accountant or tax adviser, who will act as your digital tax agent.
- Keep digital records – so you have a record of all financial transactions that take place in the business, stored and tagged in a digital format that HMRC can access.
- Make digital tax submissions – by connecting your accounting systems directly to HMRC's digital platform via their proprietary application programming interface (API).
Being ready for MTD
To hit the ground running with MTD, you need to be using suitable accounting software. This accounting platform will be the digital heart of your business, recording your transactions, storing all the necessary data and documents, and making those digital tax submissions.
Xero online accounting is our financial platform of choice at Day Accountants. It's cloud-based, easy to use and is already on the list of approved MTD-compliant software. So, for most Xero users, this means you're already set up to get the best out of the move to digital.
But if you're not on Xero (or a comparable platform like QuickBooks or Sage Business Cloud) then it's definitely time to upgrade your financial systems and go digital.
Key benefits of going digital
Switching your accounting and tax returns over to digital has a number of key goals. But on the whole, it's about improving the way you keep records, increasing the range of data you have access to and speeding up the mundane tasks like tax returns and bank reconciliation etc.
But the benefits of being a digital business go way beyond just giving your accounting processes a new lease of life. With a modern cloud accounting platform, like Xero, at the centre of your business systems, you have access to a huge ecosystem of additional business tools.
With some smart use of digital tools, you can:
- Enhance your management information – with digital data at the heart of your system, you can easily pull together detailed profit & loss reports, cashflow statements, sales reports or key performance indicator (KPI) dashboards, improving decision-making.
- Increase your access to finance – having real-time digital reporting allows you to provide lenders and investors with detailed financial reporting, improving your chances of getting the funding you need to expand and grow.
- Keep your important data safe – forget about paper records or server back-ups, with a digital system your important data and records are all safely and automatically stored in the cloud. And you can access them from any device, not just from the office.
- Automate the repetitive admin tasks – admin eats into your business time, so why not automate your bookkeeping with an app like Receipt Bank, or use the Chaser debtor app to automatically chase up your late-paying customers and speed up payment?
- Accept new payment options – payment gateways like GoCardless, PayPal or Stripe can be connected up to Xero to take payment direct from your electronic invoices. Or you can take card payments in person with card readers from iZettle or Square.
And that's just the tip of the iceberg. Take a look at the Xero App Marketplace to see other ways that working digitally in the cloud can help your business
We'll help you get digital ready
A digital business is an efficient business. And getting your small business ready for MTD is just the first step in a wider digital transformation project.
Digital has the ability to streamline your processes, cut out the wasted admin time and give you increased control over your finances and reporting. We've worked with many small business owners to help them review their business and set up the ideal custom Xero system.
If you're looking to get MTD-compliant and want to fully embrace the potential added value of becoming a digital business, we'd love to hear from you.
Get in touch to talk about going digital