Making Tax Digital (MTD) is the government initiative that is revolutionising the way UK businesses record, submit and pay their taxes. While it’s understandable that some business owners are wary of changes to the tax system, particularly when new technology is involved, MTD should make your life easier once you get used to your new obligations.
With that in mind, we’re going to take a look at some of the benefits of Making Tax Digital for business owners to help you see why it’s not something you need to be worried about.
Why Making Tax Digital Will be Good for Your Business
Going digital makes bookkeeping easier
One thing that’s very important to stress is that Making Tax Digital is not optional. Unless you’re exempt, MTD is mandatory for all UK businesses, so it’s worth trying to see the benefits. And the good news is, there are plenty.
For one, having all of your tax records in one place – your MTD-compliant accounting software – makes the bookkeeping process much simpler. Rather than digging through old files and stacks of paper, you will have immediate access to all of your financial information so you can get a clear picture of your business’s position in an instant. Yes, you will have to pay a small monthly fee to an accountancy software provider, but you’ll gain a lot when it comes to the financial clarity and control you have of your business.
Know how much you owe
Do you submit your annual tax return and you are often horrified by how much you owe? You’re not the only one. Making Tax Digital will remove any surprises of income tax.
Under MTD for Income Tax, you’ll have to submit a return every quarter, so by the end of the year, you’ll have a much better idea of how big your tax bill is going to be. That will give you more control over your cash flow and help you budget accordingly.
Avoid the last-minute panic
Ask a room full of business owners what their least favourite time of the year is and at least half will probably tell you it’s tax return time. That’s because many business owners leave filling out their tax returns until the last minute. They then have to spend the last few days of January trawling through their invoices, receipts and business records, which is not a lot of fun.
The beauty of Making Tax Digital is that you’ll be using your MTD-compliant accounting software (here’s a full list of compliant software) to log your important tax information as you go. So, rather than spending late nights frantically trying to find everything you need to get your return in on time, you can sit back and click submit, safe in the knowledge that everything is up to date.
Always be connected to your business’s finances
The requirement to use MTD-compliant accounting software can bring about a complete seachange in your relationship with your business’s finances. Rather than only getting to grips with your finances during your annual or quarterly meeting with your accountant, accounting software can give a complete picture of the financial health of your business – the cash flowing in, the cash flowing out, bank balances, upcoming payments – in just a few clicks.
You can also choose to use the mobile apps provided with some accounting software packages. That will give you an unbeatable level of financial insight wherever you are and at any time of the day.
Fewer mistakes and no late submissions
The last thing any business owner wants is to receive a financial penalty for making errors on their tax return or submitting it after the deadline has passed. Making Tax Digital for VAT and Income Tax can help to reduce the likelihood of errors and late submissions by giving you much better oversight of your tax records and returns.
Of course, your accounting software will only be as accurate as the data you enter, but the requirement to send updates to HMRC quarterly means you’re effectively checking your accounting data every three months. Your software will also automate much of the work that goes into filling out your submissions, leaving you with the simple task of submitting them on time.
There’s no need to stress about Making Tax Digital for Income Tax deadline. Although it will be a change for your business, the initial effort and expense of adopting digital accounting software will be repaid by the benefits eventually.