With less than six months to go until the UK Government’s Making Tax Digital (MTD) deadline in April, there still remains some uncertainty for UK organisations around the impact of MTD on their business. A recent Access Group survey of 300 finance professionals from UK mid-market businesses, found that 1 in 5 finance professionals are unaware of MTD, what it means and when its imminent deadline is due to hit.
The Making Tax Digital programme (opens in new tab) will require UK businesses with annual turnovers above the VAT threshold of £85,000 to keep digital records for VAT and submit their returns digitally. The points-based penalty system means business taxpayers gather points with each late submission of an MTD report, those with multiple businesses must submit tax reports for each of their businesses. To ease the transition process, HMRC is allowing the use of ‘bridging software’ to support the digitised submission and account information retrieval from spreadsheets. However, some risk not having the systems in place to do so as they carry out business as usual.
Moving entirely to digital processes
While all respondents in Access Group’s survey use some type of electronic system for financial management, 96 percent of mid-market businesses still process a portion of their tax returns manually, for example performing off-system calculations, which could be problematic come 1st April if businesses fail to use bridging software to support the digital submission of their VAT returns. The question is then, why do some organisations rely heavily on manually calculating? A large proportion of the finance professionals surveyed explained that they haven’t transitioned to 100 percent digital processes due to a lack of knowledge and training (26 percent) while others said it’s the fact that multiple legal entities are involved in VAT registration (23 percent).
Manually entering VAT is purely inefficient and prone to human error. Under the new regulations, mid-market businesses could stand to lose not only money in fines, but credibility within their respective marketplaces. Ignoring or putting off making the necessary technical changes to your business is no longer an option.
Seizing the opportunity
There are some considerations that businesses must not gloss over. For example:
- Transformation: Implementing new business software isn’t always an easy decision. Especially when there are multiple ways to ensure your organisation remains compliant with government regulations. Considerations need to be made for either full business software transformation or a single solution update i.e. bridging software, to support. Given the impending six-month deadline, businesses must act now, to ensure they’ve put in place measures that abide by the regulations.
- Accreditations: When deciding to begin a digital transformation project, particularly with digitising financial systems, choosing a partner that has the proper government accreditations is paramount. Acronyms like ISO or IL are ones to look out for.
- Productivity: Digitising financial systems offers the business not only a more efficient, and free of human error way of working, but a more productive way as well. Entrusting admin-heavy tasks to intelligent software can free up time elsewhere to focus on innovation, business development and growth ambitions.
However, whilst it’s important that businesses’ financial systems are all set for the 1st of April deadline, to think about Making Tax Digital in terms of tax compliance alone would be to severely miss the point. It’s the perfect opportunity for UK business’ senior management teams to take a broader perspective – one that turns this regulatory burden to the business’ advantage. Those who act could see greater efficiency and productivity, driving both business growth and profitability by implementing the right solutions. And businesses are running out of time. Given the pressures coming from Government organisations to digitise and the complexities that go into technology investment, mid-market businesses need to ensure their finance teams’ house is in order to remain compliant and avoid fines in the new era of digital tax.
Steve Lane, CTO at The Access Group (opens in new tab)
- We've also highlighted the best tax software