Submitting your business taxes online is not a new idea. As government statistics show, 98% of corporation tax returns and 99% of VAT returns are already submitted online. Many smaller businesses already have digital accounts for managing their taxes.
But the present tax system is still inefficient and fails to reflect the huge changes in digital technology. To overcome these limitations, HMRC is launching the ‘Making Tax Digital’ initiative.
Making Tax Digital (MTD) focuses on four key objectives:
Tax simplified: Making it easier and simpler to submit tax data online, while centralising how financial data is stored and used.
Making tax digital for business: Moving business taxes online, to collect and process financial data in as close to real time as possible, and speed up the process of paying those taxes.
Making tax digital for individual taxpayers: Every individual and small business now has a digital tax account, making it easier to submit and pay tax.
Tax in one place: Centralising all tax information in one place online, giving a full and transparent digital view of your taxes.
However, there’s one big stumbling block for MTD...
For tax to be managed in the digital domain, HMRC needs businesses to submit financial information in a digital format. That means adoption of cloud accounting is vital for tax agents and businesses that have yet to move online.
How can your firm make the leap into this digital way of working? We’ve highlighted five key steps for making sure your practice and your clients are ready for the digital future of tax.
1. Move to cloud accounting
By moving to a cloud accounting platform, you start to work with clients in a digital way (our A-Z of Cloud Accounting e-book lists the key advantages).
Financial transactions are captured by the client’s accounting software and instantly saved as digital information in the cloud – allowing you to instantly access their data.
Paperwork, receipts and invoices can be scanned, digitised and backed-up online – giving you and HMRC all the documentation needed to complete a tax return.
Clients’ digital data can be plugged into the relevant tax return template and submitted online directly to HMRC – meeting the digital requirements of MTD.
2. Use software apps to streamline financial processes
Cloud accounting software provides the digital foundation for getting MTD-ready, but it’s the ever-growing ecosystem of cloud tools and fintech apps that make the process less of a chore.
Use smart-scanning data management tools to digitise client paperwork and turn it into the zeroes and ones that HMRC needs.
Work with cloud-based business intelligence solutions to analyse clients’ financial data and plan their tax liabilities and costs in fine detail.
Use automated credit control apps to make sure clients don’t rack up aged debts and have the funds needed to pay their tax bills on time.
3. Onboard your clients to digital and the cloud
If you’re going to help clients get MTD-ready, you’ll also need to help these businesses get ready for working in a digital way.
In particular, you should focus on:
Helping clients to set up their accounting systems and tailor their software and apps to the needs of their particular industry.
Training their finance team in using the new software and helping them refine their processes to be as fast and efficient as possible.
Clearly defining your own practice processes and how you expect clients to work when submitting their financial information and tax documentation.
4. Get paid online and turn transactions into digital data
Getting transactional data into clients’ accounts as quickly as possible is a big part of MTD. To achieve this, clients need to embrace cardless and online methods of taking payment.
With online solutions, transactions are pulled straight into clients’ accounting software, speeding up the process of bank reconciliation and delivering real-time sales and revenue data.
Once converted into data, transactions can be quickly and easily matched to the correct accounts, speeding up the submission of tax information.
5. Submit tax information online
Your goal is to make it as straightforward as possible for clients to share their tax information with HMRC. That's easily done using a combination of online accounting software and apps.
Cloud accounting software will include templates for submitting everything from corporation tax and VAT, to PAYE and National Insurance contributions.
Clients’ accounts and documentation are already digitised, ready to be uploaded and shared with HMRC in the relevant format.
There’s no last minute panic to collect receipts or match missing invoices. Everything needed to submit a client’s tax information is already safely stored in the cloud.
Get your firm and clients ready for digital
Over a third of UK accountants already use online accounting. So there’s a growing need for your accountancy or bookkeeping firm to embrace the digital approach and work in partnership with clients to meet that MTD deadline.
To be ready for real-time submission of tax information, your business clients need you to give them tech-savvy advice. That means your firm must:
Be based in the cloud and understand digital.
Have the software knowledge needed to tailor clients’ systems.
Provide the accounting/tax expertise required to plan and submit business taxes for clients.
You can find more information on the government's Making Tax Digital plans here.
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