Making Tax Digital (MTD) may not be the most glamorous of projects on your list to discuss with your accountant or finance director. But it may just be the most important.
From 1 April 2019, now just days away, HMRC requires VAT-registered business in the UK to use MTD-compliant software to file their VAT returns.
To ensure they are compliant with the new system, small businesses will need to either use Bridging Software, capable of securely linking between HMRC and a traditional non-compliant system (such as Excel), or use fully-featured cloud accounting software capable of both handling record keeping and generating MTD-compliant submissions.
Coming to terms with MTD
For a number of businesses, the new legislation may sound intimidating, but it needn’t be. Extensive training and support is available, from software providers to HMRC, to help businesses get up to speed in a matter of hours.
It is vital at this point, with MTD just days away, to set the time aside to understand the requirements of MTD, and how they dovetail with your existing business processes, and map out a plan to make any changes required. Whilst your business’s first MTD-compliant VAT return may not be due for a number of months, the digital records to support that return will need to be in place.
But simply becoming compliant with MTD is not the reason I said this may well be the most important project you will want to discuss with your leadership team. It presents a huge opportunity to nudge your business towards wider digital adoption, and reap the efficiency and productivity rewards.
A recent report by behavioural economists Volterra Partners, commissioned by QuickBooks, showed the scale of this opportunity.
The Productivity Payout: UK Small Businesses and the Digital Economy found that the nudge of complying with MTD introduces business owners and their employees to all the features of digital accounting software, the benefits of which for an average small business with ten or more employees would lead to an annual productivity gain of £18,000 per year.
One small nudge to adopt digital in one essential area of business practice such as accounting can be enough to enable non-digital natives to see the value, simplicity and efficiency that digital can bring.
Digital is all around us, and businesses that fully embrace everything it has to offer will see a competitive advantage in being best able to service their customers and clients in a rapidly changing world.
Conversely, if small businesses fail to embrace digitisation, they put themselves at risk of falling behind the competition adopting increasingly innovative practices.
For example, accounting software makes it easier than ever to stay on top of your cash flow, yet poor cash flow management remains the cause of a large percentage of business failures. In today’s tough economic climate, operating margins are thin and firms need to be sure they have capital available to avoid missing out on new business opportunities. Digital accounting can turn efficient cash flow management from being another potentially painful and time-intensive element of running a business into a commercial opportunity.
It’s easy to see how cash flow issues can creep up on businesses not on top of their accounts as a result of late payments, or a creeping decline in transaction values with regular customers. By automatically chasing invoices and integrating with convenient payment options, as well as providing instant insight into the status of customer accounts and overall business cash flow, accounting software can almost instantly solve these issues, putting your business ahead of the game in pitching for the next big client win.
By investing in cloud accounting to help you comply with MTD, you can reap the rewards of the opportunity of nudging your business towards embracing digital. You will get back the time and money you would have spent on tax returns, ready to reinvest in the success of our business.
Shaun Shirazian, Head of Product at Intuit QuickBooks