Businesses from all sectors have always faced a constant flow of legislation and compliance, but when this is set against the backdrop of unparalleled disruption caused by technology, why should you embrace the digitisation of the tax system? 

Naturally, entrepreneurs will have anxiety around the introduction of this change and wonder about the complexities and implications associated with MTD or Making Tax Digital. Who can blame them? Change is and has always been overwhelming, but facing the challenges and having a clear plan to navigate them is crucial for all businesses. 

What is Making Tax Digital? 

MTD is a critical component of the government’s plan to help early-stage entrepreneurs and individuals get their tax rights and keep on top of their affairs through a fully digitalised tax system. MTD compliance became mandatory in 2019 for most VAT-registered businesses with a taxable turnover of £85,000. Those exceeding this amount will be required to keep digital records and submit their VAT returns using MTD-compliant accounting software. 

So far, the government reported that more than 1.4 million businesses had signed up for Making Tax Digital for VAT and that over 4 million VAT returns have been submitted successfully using MTD-compatible accounting tools. 

What is MTD compliant software? 

While it’s possible to use spreadsheets in combination with a “bridging software”, most businesses and accounting professionals choose to use more comprehensive accounting tools. 

These software tools use the data from your everyday business operations to get a more comprehensive picture of your business’s tax data in real-time, identifying errors and delivering prompts for information that might otherwise be overlooked. 

However, while this initiative for businesses to shift from manual accounting records to digital software isn’t new, many have found it difficult to revamp the bookkeeping process as Making Tax Digital legislation completely revolutionised it. 

The good news? Despite an initial shock, not all is lost. MTD legislation will have the following benefits for your organisation or small business. 

Benefit #1: No more paperwork to worry about 

If you despise the annual sort through of invoices, receipts and documents, then Making Tax Digital will make your life a whole lot easier. Using MTD-compliant software can help your bookkeepers keep an eye on all of your business’s incomings and outgoings online.

The cliché of an outdated business whose bookkeeping involves a shoebox full of invoices and receipts that are passed to their accountant once a year is often seen as exaggerated and comical, but for many entrepreneurs, this is reality.

However, if businesses across different sectors take the plunge by investing in digital tech, they can get the full benefit of reduced IT costs, improved security and easier mobile access. 

Benefit #2: Easier accounting and bookkeeping 

Complying with the MTD guidelines means that you can easily track return dates, upcoming bills and owed bills all from one single button. Accounting software will give you immediate access to critical financial information, analyse your financial health and avoid any unwanted surprises from creeping out of nowhere.

By streamlining your cloud-based system, you can fully take control of your business and focus on growth. Obviously, the scepticism around MTD will continue, but we cannot overlook the inevitable. The advantages of digitisation are real and are being seen by entrepreneurs who are introducing these changes. Some business owners have been gradually reducing paper accounts, and MTD is just another step that’s accelerating this transition. 

Benefit #3 Real-time tax data  

Business accountants no longer have to wait hours to submit tax returns and view important financial information. With reliable accounting software, they will be able to keep an eye on things throughout the year.  

This means business owners will have a better understanding of what they owe, so they can have everything set and ready long before the tax deadline arrives. Being up to date with the latest financial information will also help business leaders make more informed business decisions.  

Benefit #4: Fewer tax mistakes, more growth 

Businesses need to ensure they get their tax right the first time in order to avoid costly mistakes and reduce downtime revisiting errors. With fines exceeding 20% of the tax amount, it’s clear that the short-term discontent of adjusting to Making Tax Digital will bring longer-term gains in accuracy, efficiency and time that can be spent on growing the business. 

Switching to a cloud solution is often recognised as the first step for digital transformation, yet some companies are reticent about the idea. Using a cloud-based accounting tool will not only help businesses to comply with the new directive, but will also improve the way in which an organisation operates, allowing for the automation of processes, gaining more control over critical information and saving more time. 

Recent findings show that businesses that integrate one single accounting software into the cloud have seen revenue growth of 20%, which rises to 25% when they employ three or more online business products. 

Finally, dealing with tax compliance, bookkeeping and tax returns isn’t just time consuming – it can also halt your business efficiency. MTD-compliant accounting software is the solution for that. It can save valuable time by streamlining and automating critical financial processes, which will allow you to focus on developing your business.