HMRC’s Making Tax Digital – Why Business Owners Should Embrace Real-Time Numbers

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HMRC’s Making Tax Digital – Why Business Owners Should Embrace Real-Time Numbers

HMRC’s Making Tax Digital (‘MTD’) initiative will be the stick that drives accountants and business owners to implement real-time bookkeeping and accounts, whether they like it or not.  However, as many of our clients are already finding, there are excellent commercial reasons why business owners should be moving to digital/cloud accounting anyway, irrespective of HMRC.


What is HMRC’s ‘Making Tax Digital’?

 

Under MTD most UK businesses will be required to keep digital financial records and report to HMRC on a quarterly basis.  Following completion of the recent MTD consultation process, HMRC have reported back and insomniacs can read the full report here.  Further clarity around the detailed provisions is required, however unincorporated businesses with turnover above the VAT threshold (currently £83,000) will need to report digitally from April 2018.  The Chancellor’s Spring Statement gave some wriggle room to those under the VAT threshold, MTD being put back to 2019.  Limited companies will fall under scope by 2020.

 

HMRC is considered a digital backmarker compared to its peers including the US and Australia.  MTD is HMRC’s attempt to improve efficiency, transparency around the business tax system and achieve more effective tax collection. 


Making Tax Digital = Real-Tim
e Accounts

 

A digital tax regime demands real-time bookkeeping and accounts. An olive branch is being held out for companies wishing to continue to use Excel spreadsheets for record keeping, but this still needs to be combined with digital software to satisfy HMRC reporting.  Moving forward, we believe Excel, pen and paper and old style desktop systems just won’t cut it! 

 

Our advice is, don’t bury your head in the sand and put off the transition until the last minute – embrace the change as businesses currently working in real time have a huge competitive advantage. 

 

So What’s Holding Back the Move to Digital?

 

According to a recent IRIS survey 93% of accountants do not believe that MTD creates an opportunity to do things more efficiently (for them and/or their clients)!

 

Many accountants remain digital Luddites.  Those preferring not to go ‘digital’ see MTD as enforced, time consuming and an administrative burden that is complicated and costly.

 

They should focus on the opportunities that digital/real-time bookkeeping and accounts provides.

 

The Benefits of Real-Time Bookkeeping and Accounts

 

There are many reasons why business owners should embrace real-time numbers, irrespective of HMRC’s MTD.  By working with progressive bookkeepers…

 

  • It gives them more time to focus on running their business, making decisions based on accurate, up-to-date numbers.

  • It means real-time cash, profit and performance measurements are available 24/7 on any computer or mobile device.

  • It means improved cash collections.

  • It means dynamic forecasting can be created quickly and updated with ‘actuals’, in real time.

  • It gives unfettered access to the business cash position with direct bank feeds.

  • It provides the opportunity to develop more productive relationships with investors, lenders, supplier and clients.


How Do I Move My Business to Real Time?

 

According to IRIS, 53% of UK businesses don’t have any bookkeeping software.  Furthermore, ‘Ability/Training’ and ‘Time’ are seen as major constraints to digital record keeping.

 

The accounting profession appears to be having a collective nightmare regarding technological change. 

 

There are practices that embrace cloud accounting technology and deliver outstanding advice using forward looking data.  But many are off the pace, waving time sheets around when they could be pricing according to the value they create.

 

The transition to real-time books and accounts may appear daunting, but it needn’t be. Progressive bookkeepers, preferably certified by the ICB, should be able to transfer their clients to real-time accounts quickly and efficiently, and for a fixed monthly fee.

 

MTD is on the cards in some shape or other.  It will be the catalyst that forces businesses to run their books digitally, in real time. 

 

Businesses that aren’t geared up with real-time bookkeeping could be in a world of pain when MTD arrives.  The good news is that by acting now, you will put your business in the best position to grow and prosper.

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