Making Tax Digital and the digital accounting challengefor small businesses
From 1 April 2019, all VAT-registered businesses will need to record and file their VAT records digitally. Small business owners now need to start preparing for the full transition to digital accounting, writes Will Farnell.
Making Tax Digital is a government initiative designed to simplify and streamline tax for individuals and businesses alike and meet HMRC’s stated aim to become “one of the most digitally advanced tax administrations in the world”. It starts in April 2019 for all UK VAT-registered organisations with a turnover above the official threshold, and it will start to impact income and corporate tax from April 2020.
In theory, it’s a necessary update for an age where automated processes are steadily replacing manual ones; in practice, it may cause short-term problems for unprepared SMEs, whatever the medium to long-term advantages. Because if you’re running an SME, Making Tax Digital will require you to upgrade your essential financial and accounting systems.
Making Tax Digital challenges
In many respects, Making Tax Digital is a welcome development. Businesses have needed to digitalise their accounting processes for some time, so we should see the introduction of Making Tax Digital as a necessary push in the right direction. After all, the more time and resources spent on manual financial reporting, the less there is to spend on core business functions; digital transformation isnt a legal obligation, but a commercial one.
Of course, if you’re running an SME, it can be more challenging to see the positive side. Digitising your financial processes likely isnt an area where you have much internal expertise or experience so finding technologically literate accounting partners should be a clear priority for 2019.
Your accountancy firm is the best place to help you achieve compliance with Making Tax Digital reviewing your existing systems and processes, diagnosing their deficiencies, and advising on potential improvements. it’s therefore worth making sure that they’re up to the task.
In other words, you need more than bean-counting and number-crunching: your partner has to provide a comprehensive service that covers as many of your financial needs as possible, and is responsive to changing circumstances and regulations.
So how do you get this service? Your accounting partners should have these key qualities.
Most digital accounting practices are able to automate time-consuming manual processes such as collecting and analysing data so when you’re looking for a truly digital firm, don’t overvalue basic number-crunching capacity. Every firm worth its fee has that; instead, look at your requirements, and determine what kind of service you need to meet them.
If that means greater availability for SME consultancy on specific financial issues and problems, look for a firm that can help you improve your company’s financial health If it means the ability to advise on accounting software and apps that are best suited to your business needs, then insist upon it. There’s enough choice out there that you can afford to be relatively discriminating about which firms you choose to work with. Prioritise the ones that will create new efficiencies and save you money in the long run.
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If you intend to scale at some point, your accountants need to be able to accommodate your growing requirements. A digital firm needs to be empowered with digital tools.
More specifically, they need tools that streamline processes, provide greater visibility, and facilitate easy access. In 2019, that means cloud accounting software, which can simplify complex practices, automate processes, allow real-time reconciliation and offer a completely holistic view of your finances.
But the software they use in-house is perhaps less relevant than whether or not it complements your own technological needs. it’s worth partnering with an accounting firm that uses a versatile core tool like Xero: one that’s robust in its own right, but also allows for certain customer-specific add-ons.
Soldo, for instance, has developed a core integration for enriched business expense data, which appears seamlessly within the platform and another integration that uses Xero’s Open Bank Feeds API to sync transactions automatically.