As the government ramps up its efforts to make sure everyone is ready for the changes brought about by Making Tax Digital (MTD), the key concern is around software. In order to access the new system, firms will need to make sure they are using compatible accounting and bookkeeping platforms with the right set of features.
The usual suspects in accounting software have been working with HMRC for a couple of years now to develop products which, for example, automatically share and update tax data with authorities online, and allow tax payments to be made through a dedicated web portal. You have probably seen some of them advertising on TV as the deadline approaches.
If you do all of your bookkeeping and tax through an accountant, you probably don’t need to do anything – they will already have the right systems in place. But if you use your own software and haven’t yet upgraded – or, even more critically, if you don’t use any kind of accounting software at all – you need to look into it quickly and make a decision on which platform to upgrade to. Here are some key things to look out for.
Although the majority of compatible solutions are complete accounting packages, there are some more lightweight options that function as ‘spreadsheet bridging’ applications. These are targeted at companies which do not use bookkeeping platforms but instead keep all records on spreadsheets like Excel. They function by extracting the relevant tax data required by MTD so it can be submitted and processed as per the new requirements.
While these provide a handy and straightforward stepping stone for companies that are new to accounting software, in the long run, as all tax shifts over to the new digital systems, businesses will probably find it easier to switch their record keeping from spreadsheets to a dedicated platform anyway. It is just a case of when you choose to make the change.
The other key decision to make is whether to purchase a desktop programme you install on your own computers or sign up to a cloud-based service. As well as spreading the costs through monthly subscription charges, the main benefit of cloud solutions is flexibility. Again, as the MTD system grows, and as more and more financial management is handled digitally, it is much easier to connect a cloud platform to other digital services than it is to keep buying, running and integrating different software in your own office.
As of April 2019, the main thing you need your new MTD-compatible accounting solution to do is submit a VAT return. This means it has to have some way of collecting and collating all relevant financial data from your firm and submitting it online to HMRC.
In addition, most products available also set out to make it easier for businesses to access and manage their tax information, so they provide some kind of portal where people can view their submitted returns, their VAT liabilities and their previous payments.
It is worth bearing in mind that, should digital tax work as hoped, we will begin to see other areas of the tax system moved over to MTD from April 2020. In that case, you might want to consider whether it makes sense to go for a VAT-specific product now, or for a platform that supports full digital record keeping in preparation for future changes.
The team at Kay Johnson Gee are certified in most platforms for MTD including Sage, Xero and Kashflow and well placed to recommend the best one for your business. If you require more information or would like to meet for a no obligation chat you can contact us on 0161 832 6221 or email email@example.com.