Making Tax Digital, HMRC’s 2019 flagship initiative, has been live for VAT registered businesses above the £85,000 threshold since April this year. But has the launch of this experimental and at times controversial policy delivered on it promises to make recording & filing VAT easier for businesses, or has Her Majesty bitten off more than she can chew?
MTD Recap – Why is HMRC Making these Changes?
HMRC have embarked on a reform of the way their internal processes work in an effort to bring them up to 21st Century standards. They are following similar models to that of New Zealand, and Australia where the tax systems actually talk to each other and provide a joined-up system.
This will give accountants, businesses, and Individuals a better view of their tax position as a whole – at least, that is the overall aim, the first step in that process is making VAT digital!
While the process of reform has begun and is currently underway for VAT, it will take many years to fully streamline the tax system – and no doubt will be a bumpy ride for accountants and business owners alike.
MTD – Teething Issues
Unsurprisingly, as with the introduction of any new software – Making Tax Digital for VAT wasn’t without its teething issues.
The early days of the initiative brought with it a lot of uncertainty as to the specifics of the policy. HMRC offered vague information on the process involved in getting businesses set-up on their new digital platform – leaving the less tech savvy uncertain of their duties and reliant on their accountants to walk them through the process.
Business owners and accounting practices alike found themselves caught between a rock and a hard place consisting of scarce communication from HMRC and strict windows of opportunity to get businesses signed-up to the scheme, otherwise registration would not have been processed in time for their VAT period deadline.
As i’m sure those running a business can attest to – software rarely works as it should first time, and HMRC are no exception to that rule.
Upon launch, MTD for VAT was often hindered by downtime within the software, leading to increased periods in which the sign-up process was inaccessible – not to mention simple digital processes such as successful confirmation messages taking up to 72 hours to be received – leaving individuals twiddling their thumbs.
MTD – The Future Benefits
Hiccups aside, there are many positive aspects to come out of Making Tax Digital which as an increasingly cloud software driven practice we for one are very optimistic regarding the benefits for our clients.
Streamlined Financial Data
The utilisation of cloud based accounting software such as Xero, brings with it the opportunity for business owners to make better informed management decisions based on more accurate, real-time financial information on their business’ day-to-day operations.
This also lends itself to better understand your business, and personal finances leading to more efficient tax planning through using more sophisticated software to accurately predict your tax liabilities throughout the financial period.
From an accounting practice perspective we also see the opportunities in Making Tax Digital – and not only through a welcomed departure from endless spreadsheets!
The push towards using state-of-the-art financial software not only leads to a reform of outdated accounting processes – but also enhances the detail and accuracy of financial reports we can provide for our clients.
Making Tax Digital ushers in a welcomed transformation to the way business keep their records.
The push by the initiative to record and file financial information solely through online software will eventually negate the requirement to maintain vast levels of paper documentation – As an industry historically dominated by paperwork, the digital revolution within accounting paves the way for paperless offices to become a reality.
Many people felt the introduction of Making Tax Digital was a negative prospect. At Price Davis we could see the move to a digital world could be a positive one for both ourselves and our clients.
As an accounting practice we took this change on board straight away, realising that this would require a great deal of change for many of our clients.
We have worked hard with our VAT registered clients to help them make the necessary adjustments to using online accounting tools like Xero. For many clients this was the nudge they needed to update their previous record keeping processes. Many of them going completely paperless.
This is just the start of the process, as many new tools become available that will plug into accounting packages such as Xero, the possibilities of building more efficient admin processes grow.
If you are interested in using digital tools to help your business build more efficient processes and improve visibility of the financials please feel free to talk to us at Price Davis on 01452 812491 & email@example.com.