The government’s vision of being one of the most digitally advanced tax systems in the world relies on modernising the tax system and making it easy for businesses to work with and therefore comply with their tax obligations and requirements. Making Tax Digital is being rolled out and the first step comes into force in April 2019 for business that have a turnover which is above the VAT threshold. This does not preclude smaller businesses from using the system, but they are not yet required to do so. So how does it work and what part does cloud accounting software have to play in making it happen?
Making Tax Digital is underpinned by four elements:
- Using information more effectively
- Real-time tax
- A single financial account
- Digital interaction between HMRC and businesses
Cloud-based accounting systems can help achieve all these in the following ways:
- Real-time data. By being stored on the cloud, digital accounting systems offer the flexibility of storage and access of data from anywhere, as long as there is an internet connection and a device to access it from – e.g. a tablet, laptop, or even a mobile phone.
- One–stop access. Cloud-based accounting systems will reconcile your invoices, payments, and orders and can even manage payroll for you. This automatic reconciliation means you do not have to go through your paperwork every so often and do it manually; this way the most up-to-date information is at your fingertips and can be submitted to HMRC at the push of a button. With quarterly accounting becoming part of Making Tax Digital, what could have introduced additional work without cloud-based accounting packages will actually make your, and your accountant’s life, much easier and with a lower margin of error.
- Effective use of information. Whereas you now have to submit much of the same information year-on-year to HMRC when you file your tax return, using cloud-based accounting software this will not only be automatically submitted the first time, but will not need to be re-submitted unless something changes. An online HMRC account also allows you to keep an eye on what information they hold for your business and only update it when things change. Using systems that will ‘talk’ to each other – including banking details, other government departments, and employers – HMRC can access what they need without regular re-submission of the same data.
- Digital interaction. You will be able to interact with HMRC whenever you want. No longer tied down to a set time each year, the link between your online accounting software and your HMRC account means that at the press of a button you can send or receive whatever information is required whenever you choose.
- A single account. As the roll-out of Making Tax Digital takes effect businesses will be able to see all their liabilities and entitlements in one place – as they currently do with a bank account – saving everyone time and money.
If you would like more information on Making Tax Digital and how cloud-based accounting software can help your business meet its obligations, our tax specialists at Cain and Co can help and advise. We are on 020 8087 1341 or at takecontrol@cainandco.co.uk whenever you need us.
