Making Tax Digital: A guide for small businesses
Blog //01-04-2021

Making Tax Digital: A guide for small businesses

by Blair Weetman, Associate Product Manager

For smaller businesses, the idea of making a big change to the way they handle tax affairs is possibly quite daunting. As a result of the Making Tax Digital (MTD) initiative, this is exactly what they’ll have to do.   

However, embracing this new strategy doesn’t need to be a complex or time-consuming endeavour. In fact, there are many reasons to be positive about MTD if you’re the owner of a small company.  

We’ve put together a useful guide, so that you know exactly what MTD is, what it means for you, and what actions you must take to be best prepared.   

What is Making Tax Digital?

Making Tax Digital is a Government plan to ensure that every individual and company submit their taxes digitally. This has already come into effect for some, and others will need to be compliant by a specific deadline (depending on their circumstances).  

Her Majesty’s Revenue and Customs (HMRC) has said it wants to be one of the most technologically advanced tax administrations globally. MTD is part of making that dream a reality.  

The Government loses out on billions of pounds each year due to errors and unpaid taxes. Small businesses also spend unnecessary time and energy going back and forth with HMRC, if, for example, they haven’t managed to get their taxes right first time. Digitisation can play a big part in solving these issues.

So, what exactly does a digital submission consist of? You must now use software to send the relevant financial data over to the Government. This system must be HMRC-approved, and have the ability to integrate with their Application Programming Interface (API).  

The Government will not be providing any free software to coincide with this initiative. Therefore, all businesses must take it upon themselves to find a solution that is suitable for their needs. Such an investment might not seem ideal for a small to medium-sized organisation, but this outlay should be more than repaid going forward (thanks to the benefits it will bring).

The Government will, however, provide your company with a unique digital account. As a result, you can monitor your tax situation at any time, and submissions can be made more frequently throughout the year.

Making Tax Digital software acts as a bridging system. If you already use accounting software to manage your finances, you can simply use this in tandem with a bridging system, in order to send information over in a compliant manner.

Making Tax Digital key deadlines

  • Already in effect (since April 2019) for VAT-registered businesses with a taxable turnover above £85,000.
  • April 2022: VAT-registered businesses with a taxable turnover below £85,000.
  • April 2023: Self-employed businesses and landlords with annual income above £10,000.
  • 2026: The particulars of MTD for Corporation Tax have not yet been confirmed. But HMRC has said it won’t be applicable any sooner than 2026.

What are the benefits of Making Tax Digital for small businesses?

  1. Future-proofing your company: This initiative ensures all UK businesses are safeguarded against the future, as the digitisation of tax (among many other things) is inevitable.
  2. Increased efficiency: By using software for this task, much of the tax return process is automated, and therefore becomes much quicker and easier.
  3. Less mistakes: The implementation of a computer system drastically reduces instances of errors and miscalculations (which would ordinarily lead to a catalogue of further problems).
  4. More control and reduced stress: Having access to a digital tax account allows companies to have more control over their affairs. By submitting returns at least four times a year, they have a clear picture of exactly how much they owe. As opposed to having one stressful period of time each year, at which point they might discover they’ve massively underpaid.  
  5. Environmentally friendly: This scheme is also good for the planet. Having millions more people doing tax digitally reduces the use of paper.

Is Making Tax Digital mandatory?

The simple answer to this is yes. Based on the dates mentioned earlier, you’ll need to ensure you are compliant before the relevant deadline passes.

Be sure to keep an eye on the Government website, just in case any of these dates ever change.

Failing to comply may result in penalties in some instances. So it’s better to be proactive and find a suitable software solution now, even if it’s not compulsory for you to do so just yet.  

What do I need to do for Making Tax Digital?

Checklist for small businesses

  • Determine which Making Tax Digital deadline is applicable to your company
  • Implement a Making Tax Digital software solution that is recognised by HMRC
  • Choose a system that is suitable for your requirements
  • Be sure to budget appropriately with this investment in mind
  • Ensure all employees are well versed in MTD, and are aware of the new process

 Making Tax Digital software

Our Making Tax Digital software is called Business Tax Portal (BTP), which is a solution that has been approved by the Government. We work with over 3,000 businesses across the UK, and have also worked closely with HMRC, meaning that this system has been created specifically with regulatory requirements and user experience in mind.

BTP allows companies to submit their VAT digitally, and directly to HMRC, using a secure API link. It is also tailored for accountants and finance teams, as we have vast experience of working with employees within this field.

It’s a standalone product (which is intentional), as it’s crucial for it to integrate with any financial system you might be using. If, for example, you’re an existing user of one of our accounting solutions, then Business Tax Portal will work with it seamlessly, becoming the necessary bridge between your data and the Government.

The same is true if you use our all-encompassing Manufacturing Software, which is perfect for small to medium-sized manufacturers. Unifying all functions of your business in one place is highly advantageous, as financial information is likely to be even more accurate and up to date (plus there is more consistency between your various departments).

BTP has also been made to be highly adaptable. So, if HMRC ever change the Making Tax Digital legislation, or if there is a common need that arises among users, we’ll update the software to make sure it is always compliant and useful.

The system is purposefully simple to use too. There’s no need to lose lots of time being trained and getting up to speed. You can be compliant instantly. There are two versions of Business Tax Portal, ensuring that smaller organisations will find an iteration to match their needs.   

If you want to ensure you’re compliant with the latest HMRC legislation, take a closer look at our Making Tax Digital Software, which is suitable for small businesses

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Blair Weetman

Blair Weetman

PUBLISHED BY

Associate Product Manager

Blair has been with Advanced since 2017. After many years in the banking industry, she is now putting her financial knowledge to good use and joined the product team in 2019. Blair is Product Manager for one of our newest cloud solutions, The Business Tax Portal and has recently taken over as product manager for one of our most popular Financial management solutions Exchequer.

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