Last Friday marked the first major test of Making Tax Digital (MTD) since it came into force on 1 April, mandating all VAT registered businesses with a turnover over £85,000 to keep digital transaction records and submit their VAT returns via specialised software. It was the day that businesses that submit monthly VAT returns had to file their first return in an MTD-compliant way through software, rather than through HMRC’s online portal. It assessed whether the new digital record-keeping and submission process truly works as intended.
For those who used the new process, all the reports suggest it went off without a hitch.
However, despite this milestone, research from strategic insight agency Opinium shows 11 per cent of SME senior decision makers polled in a recent survey weren’t aware of the new requirement to be MTD compliant.
- QuickBooks accounting suite review
- Best tax software of 2020
- Are you ready for Making Tax Digital?
Step change
Some of these business owners may have an accountant taking responsibility for the entire situation. But some won’t. There’s also an added complication that almost half – 46 per cent – of those polled who thought they were compliant were found not to be, while a quarter of compliant companies didn’t think they were set up correctly for the changes.
It is likely that there is an element of confusion at play; some businesses who already keep digital records, but only submit their VAT returns through their existing government gateway account, may think they are already MTD compliant. In fact, it will no longer be acceptable for them to file future VAT returns via the government gateway. Instead, they will need to use MTD-compatible software capable of securely transmitting data to, and receiving it from, HMRC without the need to manually type data on to a portal screen.
It is not uncommon for firms to be resistant to change, making them slower to adopt new ways of working, particularly when it comes to tax compliance. This is certainly what QuickBooks has found when it comes to MTD. There is no doubt that for some, achieving compliance marks a step change, but once they have made the change there are also countless advantages to making the move to digital record keeping, including access to near limitless reporting functionality giving a real-time view of financial health.
MTD is a huge opportunity to navigate digital adoption, to streamline operations, motor efficiencies and simplify tax. The same study found moving to being MTD compliant is for the vast majority either quicker (42 per cent) or only as time consuming (44 per cent) as anticipated, with just 13 per cent saying it took longer than they expected to prepare for the move.
As digital tax is embraced, our challenge is to help small businesses and accounting professionals digitize the engine of their business to help them supercharge productivity. By backing small business owners through the transition of MTD we can help accelerate cash flow management and allow them to get paid faster and run their companies more effectively.
Chris Evans is UK Country Manager and Vice President at Intuit QuickBooks
- Best UK tax software 2020