‘Making Tax Digital’ is the HMRC initiative of becoming a true 21st century tax collection agency. This sounds good in principle, but how does this impact you and your small business?
Before we start, it’s worth pointing out that this looks likely to be applicable to both UK sole traders and UK limited (ltd) companies, so all types of business are impacted.
There is a lot of information on the ‘Making Tax Digital’ initiative, so we’ve summarised this by looking at the two ways it’s going to affect your business the most. So here goes:
1. Quarterly rather than annual reporting for business
This is quite a big change from the current situation. On the face of it, you may be thinking that this means you and your accountant will have 4 times the hassle!
What it will mean is that businesses will have to have their bookkeeping and accounting up to date on an ongoing basis, rather than rushing after each year-end to find and enter receipts and bills.
And by having financial information current and up to date, your business will be able to make more informed decisions based on your financial performance.
2. Reporting to HMRC through accounting software
Too many small businesses are still running their accounts on Excel. A lot of traditional small business accountants still prefer Excel for doing their clients’ accounts. But this is because these traditional small business accountants often look at your information just once per year, often many months after the year end, which means some of the information is over a year old!
This is just about acceptable when the accountant is just filing tax returns and annual accounts but does not work at all if you expect useful advice on improving your business and increasing profitability.
The better situation is that you and your accountant work on a cloud-based accounting software. This way, you will both be looking at up-to-date information on your business’ financial performance, allowing you to make necessary changes and decisions more quickly.
This sort of informed decision-making can be the difference between a failed business and one that truly reaches its full potential.
So HMRC nudging small businesses to use accounting software is a good thing.
In a nutshell
So overall, we here at CFO360 UK think that the move to ‘Making Tax Digital’ is a positive thing. Any business will benefit from more regular advice from their accountant, based on current and up-to-date information, and this is made possible by pushing small businesses to use cloud-based accounting software.
Obviously, in the short term, there are some adjustments required to make sure your business isn’t disrupted by ‘Making Tax Digital’. For businesses already using cloud-based accounting software, you may not even notice the change!
CFO360 UK base our entire business around using the cloud-based software Quickbooks Online, because we know that this is the future of small business accounting. We use software to improve your business, by giving relevant tax and financial management advice, by reducing the amount of time you need to spend ‘doing your books’ and we do this at an incredibly reasonable price.
If you want to discuss how ‘Making Tax Digital’ will affect your business or how CFO360 UK can move your business quickly and painlessly onto top-notch cloud accounting software, drop us a line at firstname.lastname@example.org, and we can arrange a call.