Earlier this year, the government introduced Making Tax Digital (MTD) for VAT legislation. This was the first wave of its overarching Making Tax Digital initiative, an ambitious plan to digitise the UK’s tax system with the aim of making tax admin more effective, efficient and as easy as possible for small business owners to comply with.
Under MTD for VAT legislation, which came into effect in April, almost all UK VAT-registered business with annual VATable sales over £85,000 now have to to keep their VAT records digitally and use MTD-compatible software to file VAT returns.
Of course, if you run a business that isn’t yet VAT-registered – or even approaching the registration threshold – you probably haven’t considered getting ready for digital tax. After all, what’s the point in spending time and effort preparing to comply with legislation if you’re not legally obliged to do so yet?
However, the benefits of digitising your business finances and moving to online accounting software go far beyond simply complying with legislation. In fact, going digital now you could give your business a massive boost for the future. Here’s why:
You’ll save time and stress
Whether it’s the ability to set up data feeds directly from your bank into your business accounts, record expense receipts via your smartphone, automatically chase overdue invoices or filing your tax returns directly to HMRC, accounting software is filled with features designed to shave valuable time from your day-to-day admin. That means less time spent dealing with the fiddly stuff and more on the parts of running a business that you enjoy!
If you’re one of the many business owners across the UK who are still wrestling with spreadsheets, navigating complex desktop software or even using hand-written ledgers to manage your finances, switching up to a digital system may seem like a daunting prospect. But don’t be intimidated! Most digital or online accounting systems are actually designed to make it as easy as possible to stay on top of your financial admin.
You’ll have better visibility over your finances
Having all of your financial data in one place doesn’t just save you time – it helps you get a far better understanding of how your business is performing from day-to-day. Not only can you access at-a-glance data about how much money you have in the bank, but you’ll also have up-to-date information about which clients haven’t paid you, how much they owe and how much your own business is spending.
Some packages also enable you to see a complete overview or timeline of your tax liabilities, including when your next tax bills are due, how much you owe and whether there’s enough in the bank to actually pay HMRC. That’s vital information that could otherwise be buried deep and unseen in a spreadsheet or a pile of documents.
You’ll be able to make better business decisions
With greater visibility over your financial data, you’ll be better informed to make tough decisions about your business and plan for the future more effectively.
For example, by analysing your cashflow you may discover that you’re overspending in a specific area of your business that you weren’t aware of – and be able to calculate how much you’ll need to save elsewhere to keep yourself in the black.
Alternatively, you may discover you have a chronic late payer or a problematic client whose demands drain your resources – and you’ll find it easier to decide whether it would be more beneficial to stop working with them.
You’ll be ahead of the game
The government has made it clear that it wants to see the UK’s whole tax system fully digitised, so MTD for VAT is merely the first step in this process. Eventually, all business taxes – such as corporation tax, income tax and National Insurance – will be brought under the MTD umbrella and will need to be filed digitally.
So instead of waiting until the legislation becomes mandatory before you implement a digital record-keeping or accounting system, you should start now. That way, you’ll be able to get fully acquainted with the software well in advance, and it’ll be a breeze to comply with any new expansion of the MTD rules in the future.
FreeAgent makes award-winning cloud accounting software for freelancers, small businesses and their accountants. Try it for free at www.freeagent.com
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