HMRC’s ultimate goal for Making Tax Digital is to create a much more efficient, less expensive method of tax collection, which is as easy as possible for taxpayers to use.
Without a doubt, switching to digital accounting makes the job of managing your business finances more straightforward. The vast majority of us already use online banking to pay our bills, so it is just a small step forward to keeping all your business records electronically. This switchover should definitely be regarded as a good opportunity to improve the way you control your business income and expenditure, and forward plan your finances.
Although initially, the changeover may seem like a steep learning curve for many businesses, the long term benefits will become apparent quite quickly.
- All your tax information in one place. At the moment, HMRC has different departments dealing with various kinds of tax. With the MTD system, each taxpayer will have one account which will have details of all the different kinds of tax they pay.
This consolidation of information will be far more efficient and will help HMRC deliver a speedier service.
- Helping taxpayers to avoid mistakes. Most people like to think they are getting their tax right, but in fact, thousands of us make avoidable mistakes. Not only do these mistakes result in loss of tax revenue for the Government, (£8.5 billion in 2018-2019), but they also cost us money directly, either as an additional tax bill or incurring a penalty for miscalculation. MTD will significantly reduce the incidence of basic errors in tax returns, which are mostly simple arithmetical and transposition mistakes. This is because businesses will be keeping their records digitally and be submitting their tax data directly to HMRC, thereby improving the accuracy of tax information received.
MTD reporting will enable HMRC easily to identify duplications, any missing transactions, and any inconsistencies, thereby saving time and effort for all concerned.
- Easy to update your information. If you have a change to your personal or business information, e.g. name or address, you can quickly update your details using your Digital Tax Account. You will also be able to view all the payments you have made and see what your tax liability will be. This will help with forward financial planning.
- Better gauge of business performance – Accessing data on a real-time basis will help you to analyse more accurately how you are performing. More regular management accounts with better stock control and cash flow information will ensure you are more informed when taking strategic decisions and enable you to take remedial action in good time, when necessary.
- Saving you money - Ensuring you are MTD compliant will ensure your business does not have to pay any more tax than is absolutely necessary. Because you will be managing your cash flow more efficiently, you will not get a nasty surprise from unexpected tax bills or late filing penalties.
- Saving valuable business time. Businesses will be able to get their tax right first time, which will save them time which can be better spent on building their business and improving productivity. In 2018 the Enterprise Research Centre (the UK’s leading research body for SME’s) found that small businesses who used online accounting software had productivity increases of over 11%.
For those businesses who don’t yet keep digital records, switching to digital will enable them to spend more time on their core business functions. Other benefits include tracking their finances more easily, keeping tabs on unpaid invoices, paying bills on time and reducing the risk of mistakes from lost or missing receipts or invoices. The business owner has better financial control and can plan for the future more easily