Making Tax Digital: How Can Businesses Prepare?

• Making Tax Digital is a key part of the government's plans to make it easier for businesses to get their tax right and keep on top of their affairs. HMRC 's ambition is to become one of the most digitally advanced tax administrations in the world.

• All VAT-registered businesses are required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.

• Businesses can seamlessly integrate MCT accounting software to their Epos Now systems.

As a business owner, taxes are inevitable. You have to file and pay them every year. If you don't do it right, you could end up owing the government a lot of money.

Now, the government is changing the tax system which will affect how small businesses file their taxes. Starting in April 2024, all businesses must use software to keep digital records and submit their income tax returns.

If you've yet to switch to digital tax or are unclear about what Making Tax Digital (MTD) entails, don't worry. This guide will explain everything you need to know about the new system and how you can prepare your business for it.

What is the Making Tax Digital Initiative?

Making Tax Digital (MTD) [1] is a government initiative that aims to make the tax system more effective, efficient, and easier for taxpayers to get right.

Under MTD, businesses will be required to use software to keep digital records and submit their income tax returns. This will be a big change for many businesses, as most currently file their taxes using paper forms.

Let's say you own a barber shop. Under MTD, you'll need to use software to track your income and expenses and submit your tax return. This will be a big change from the current system where you may simply file a paper form with your accountant or directly with the government.

Making Tax Digital will come into effect in April 2024 [2]. All businesses will be required to use software to keep digital records and submit their income tax returns.

The scheme is compulsory for all VAT registered businesses with turnover of £85,000 (the current threshold) or more. However, there are exemptions if your company is a religious society, for those unable to use digital tools due to age, disability or remoteness, and for insolvency [3]

What are the benefits of Making Tax Digital?

There are several benefits of Making Tax Digital for businesses, including:

Reduced error and fraud 

By using software to track income and expenses, businesses will have a more accurate picture of their finances. This will reduce the chances of errors and fraud.

Easier compliance

The new system will make it easier for businesses to comply with tax rules and regulations. This is because businesses will have all of their financial information in one place, making it simpler to file accurate tax returns.

More support and guidance

The government has said that it will provide more support and guidance for businesses under the new system. This will help businesses transition to the new system and ensure compliance with the rules.

What do you need to do to prepare for Making Tax Digital?

If you're a small business owner, there are several things you can do to prepare for Making Tax Digital:

1. Research & Understand the Changes

The great news is that, by reading this guide, you're already on the right track! It's important to research and understand the changes that are coming with MTD. This will help you make any necessary changes to your business processes.

Some other things you should do to prepare for the changes include:

• Read and understand the guidance provided by HMRC.
• Review your resources and internal processes.
• Review your fees and engagement letters.

2. Update Your Software & Processes

Once you understand the changes that are coming with MTD, you can start making any necessary updates to your software and processes. This may include switching to accounting software that is compatible with MTD or updating your invoicing and bookkeeping processes.

Some of the most popular accounting software for businesses include:

• Xero
• QuickBooks
• Sage Business Cloud

If your company uses a cloud-based EPOS system, you may also want to check if it integrates with any accounting software above. This will make tracking your income and expenses easier under the new system.

3. Train Your Employees

If you have employees, it's important to train them on the changes that are coming with MTD. This will help ensure that they can comply with the new system and file accurate tax returns.

Some things you may want to cover in your training include:

• How to use accounting software to track income and expenses.
• How to file tax returns under the new system.
• What changes are coming with Making Tax Digital.

4. Communicate the Changes to Your Customers

If you have customers, it's important to communicate the changes with MTD. This will help ensure that they are aware of the new system and know how it may affect them.

Some things you may want to include in your communication with customers include:

• An explanation of the changes that are coming with MTD.
• How the new system may affect their experience with your business.
• What they need to do to prepare for the changes.

5. Stay Up-to-Date on the Latest Developments

The rules and regulations surrounding Making Tax Digital are constantly evolving, so it's important to stay up-to-date on the latest developments. This will help ensure that you are compliant with the new system.

Some things you can do to stay up-to-date on the latest developments include:

• Sign up for email updates from HMRC [4].
• Check the government's website for updates and guidance.

By following these steps, you can prepare your small business for Making Tax Digital and ensure that you are compliant with the new system.