The Benefits of Making Tax Digital
Tax compliance in the UK is quickly becoming a different landscape. From the 1st of April 2019, all UK businesses with a turnover above the VAT threshold of £85,000 began to file their VAT returns in compliance with the Making Tax Digital (MTD) legislation. This new legislation required all sales and purchase records to be held and filed digitally as HMRC believed that a reduction in paper records would make tax preparation more efficient.
HMRC’s initiative for businesses to shift from manual bookkeeping records to digital software is not surprising, given that VAT is one of the main areas of tax fraud. However, many businesses have found it challenging to overhaul the bookkeeping process as MTD legislation completely revolutionised it.
Fortunately, all is not lost—in spite of the initial shock, the Making Tax Digital legislation will have the following benefits for your business:
Benefit #1: Real-Time Information
MTD makes it easy to store information and record transactions on a real-time basis, meaning that you will always be able to keep track of your financial data. This allows business owners to have clear and constant overviews of their companies’ profits and cash flows. This will, in turn, keep them from encountering unpleasant surprises further down the line.
In addition, to effectively manage and impact on your business’s profitability, a cloud-based bookkeeping solution facilitates a seamless ongoing collaboration with your bookkeeper or accountant as all parties will have instant access to all financial data of your business. As a result, your bookkeeping, accounting, and financial performance reports can be timely and more accurate each month.
Benefit #2: Save Time and Reduce Errors
Bookkeeping can be a complicated and time-consuming process. Missing a VAT deadline can have significant consequences and, with that in mind, MTD compliant bookkeeping software such as Xero has features that can reduce complexity, such as:
- Invoice scanning technology allows you to use photos or scanned images of invoices, which are automatically recognised by a cloud-based system. This removes the need to identify the supplier and type sensitive information, which completely eliminates errors.
- MTD automatically integrates with your cloud-based bookkeeping software as well as with other systems and apps, which saves you time as it removes the need to manually type the same information twice.
- Additional apps can also raise sales invoices on-the-go using mobile phone applications and allocate purchase transactions automatically including VAT reclaims based on bank statement detail.
Benefit #3: Easier Bookkeeping and Accounting
Entering the digital world means that you can easily track tax return dates, owed payments and upcoming bills all in a single click of a button. With immediate access to crucial financial data, you can analyse your financial health and prevent any unwanted surprises from creeping up out of nowhere. With a simplified cloud-based system, you can fully take control of your finances and focus on growing your business.
The Bottom Line
Dealing with bookkeeping, tax compliance and tax returns can be time-consuming and put a halt to your business productivity. MTD bookkeeping software can provide the solution as it can save valuable time by automating your key financial processes, which in turn allows you to focus on developing your business.
If you’re looking for a cloud-based bookkeeping service, get in touch with us today to see how we can help.