If you’re a business owner or are involved in finance, you’ll undoubtedly have heard of Making Tax Digital (MTD). For anyone who’s unsure, MTD is a government initiative that aims to digitise tax administration to make it more effective, more efficient and easier for taxpayers to get it right, all geared towards the goal of turning HMRC into one of the most digitally advanced tax administrations in the world.
From April 1st 2019, VAT-registered businesses with a taxable turnover above the VAT threshold will be required to use the MTD service to store digital records and use software to submit their VAT returns.
While many businesses have embraced this change, there are some for whom such a transformation will present complications. For example, businesses that have been handling their accounts manually are likely to face the biggest transition when it comes to going digital. But, no matter the level of digital maturity, investing in the right technology should be the main priority for all businesses looking to become, and stay, MTD compliant.
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This is where Enterprise Resource Planning (ERP) software comes into play. ERP is technology that helps companies manage and analyse their activities throughout the business – including finances and accounting – and there are several reasons why it will have a key role to play in the future of MTD.
Enabling digital accounts
Despite the scale of digital transformation that has taken place over the last few years, many businesses still rely on manual processes or spreadsheets to manage their accounting. This can present complications when it comes to submitting accurate tax reports, not be mention be extremely time-intensive.
With ERP, processes and accounts can be digitised, enabling companies to submit VAT returns digitally in accordance with MTD regulations. As well as increasing efficiency and significantly streamlining internal processes, it means data can be centralised in one location, thereby ensuring full visibility into financial records.
The software can be used to process financial data and be customised to comply with any tax jurisdiction or set of accounting rules – all while maintaining a high level of regulatory compliance.
What’s more, digitising accounts with ERP software can also provide wider benefits for businesses. For example, it can provide employees with the tools to work remotely. Financial data can be integrated into mobile apps, giving employees easy access to the information they need from wherever they are, in turn letting them work more flexibly and productively.
Ensuring reliability and security
It’s no secret that humans are fallible. We make mistakes in all walks of life and accounting is no exception. But ERP has the ability to significantly reduce the chance of errors being made, as well as being able to keep data secure.
With traditional spreadsheets or paper records, the contents can easily be changed – either accidentally or on purpose – which of course has potential legal ramifications. Similarly, one wrong formula can lead to incorrect figures, which could result in fines if the correct tax isn’t being paid.
ERP removes these risks by allowing businesses to store records digitally. Not only does this meet HMRC requirements that say VAT records must be kept and preserved (which can be difficult if you’re storing them in paper files at the back of a cupboard), but it also provides an additional layer of security.
Features such as role-based and data-based security prevent employees from accessing data they’re not meant to, while the ability to secure and encrypt passwords can help keep confidential information out of reach of prying eyes. Given the sensitive nature of financial data, ensuring the security of records is something businesses can’t afford to overlook.
Finally, companies can use MTD as a springboard to digitise other areas of the business. This is essential in today’s digital world and can help companies keep pace with their competitors, or even give them a competitive advantage.
Businesses have to remember that accounting software is just one function of ERP. The technology can be used to transform many other areas and support a wide range of operational needs. This includes the likes of sales, warehouse management, supply chain, HR, and business intelligence, all centred around providing real-time access to data in order to improve business efficiency.
Rather than limiting themselves to just one operational area, companies have to be prepared to think holistically with ERP and consider how it can apply to other facets of the business. Those companies struggling to manage an eclectic mix of spreadsheets, printed documents and handwritten invoices – of which there are many – will find that an ERP system can be a great way to remove the burden on employees.
For MTD specifically, ERP offers a host of practical benefits. But, when looking at the bigger picture of digital business, it can act as the catalyst for a wider transformation.
Andres Richter, CEO at Priority Software
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