Making Tax Digital – It’s All about the Opportunity
New changes to the UK tax system mean that VAT returns will now have to be submitted digitally. Gareth Magee, Partner at Scott-Moncrieff, one of Scotland’s leading independent firms of chartered accountants, talks us through the changes and explains how to get ‘MTD ready’.
The first stage of Making Tax Digital, the government’s drive to digitise the process of supplying information to HMRC, comes into effect this month. Perhaps understandably, many SMEs are concerned about the new requirements and the potential upheaval and cost that may be involved. However, this change represents a real opportunity for businesses to change the way they do things and reap significant rewards.
From 1 April, all VAT registered businesses will need to provide their VAT returns to HMRC using compatible software. There has been some uncertainty about what this will mean in practice, and a variety of solutions are available, however most of the major online accounting software providers are on the case.
Providers such as Xero have been working with HMRC to ensure that their solutions will be compatible so that their users have an easy and straightforward transition to the new reporting system. Moving your records to Xero can minimise the chances of your business being subject to penalties and fines for late payment due to non-compliance.
But moving to the cloud doesn’t just remove the headache of Making Tax Digital. Online accounting is fast becoming a must-have for businesses – particularly SMEs – who need access to insightful information at their fingertips and who need to be able to collaborate efficiently with their advisers.
Recognising this shift in user demand, a thriving industry of app providers has developed over the last few years. These companies develop and produce apps which work in tandem with Xero and other online accounting software to help you to make the most of your information. From more efficient document management, increased data security and access to real time information, these apps can help you improve the running of your business.
All businesses have the same fundamental process when it comes to their finances. In addition to the core central processing functions, data needs to be fed in, and users need to be able to get meaningful information out – and that’s exactly how the apps can help. There are apps for every stage and they could transform your financial processes from start to finish.
Here are a few of our recommendations:
Every system relies on data but gone are the days of manually keying this in. With the latest technology, optical character recognition can be deployed so that information can simply be scanned and uploaded. Apps such as Receipt Bank and Auto Entry provide this scanning technology and populate your accounting software with all the data.
At the core of every finance function is a processing engine. Online accounting packages allow you to do the more mundane bookkeeping tasks faster and more efficiently, so you can focus on more meaningful analysis. Secure and fully supported 24/7, Xero is, in our view, the best of these packages. You can view your information in real time, collaborate remotely with your advisers and plug in countless apps.
Cash is the lifeblood of every business – it can fund growth or lead to business failure. Managing cash is absolutely fundamental to the health of your business. Having the ability to predict, harness and enhance your cash position will be critical. Apps such as Float can do just that, giving you an intuitive and visual real time view of your cash position and forecast. By automatically updating your cashflow from your accounting programme it puts an end to manual processes.
In the past many business owners have struggled to get accessible reports out of their accounting software. Reams of data could be extracted but analysing it was a headache. However new apps can now present the information from your accounting software in a very visual and easy to digest way, using colour and graphics to help you clearly see the trends and insights in your data. Spotlight and Tableau can support in automating reporting, strategic planning, goad-setting, budgeting and forecasting with instant analysis of your accounting data.
Increasingly, Xero’s vision is less about just management accounting and more about forging partnerships with new, exciting, entrepreneurial lenders to bridge the gap between SMEs and much needed growth finance – and using technology to do this in a seamless way. MarketInvoice is a great new example, linking your Xero data with Barclay’s invoice financing function to provide an exciting new way to raise finance at the touch of a button, totally out with the traditional high-street banking model.
It’s clear to see the beginning-to-end benefits that the cloud accountancy app market has created. Not only will it allow businesses to become more digitally savvy, there are further benefits in the form of scalability, flexibility and data protection.
The real beauty to SMEs right now, though, is the potential to remove the pain of Making Tax Digital. This makes it the perfect time, not only in terms of having the right digital solutions in place for the HMRC deadline, but also to have the right systems in place to support your growth.
So don’t view MTD as a red tape obligation. See it as an opportunity to transform your accounting function and make it fit for the future.