Gone are the days of submitting your taxes and worrying for weeks about getting a call from HMRC telling you that something isn’t right. With new taxation software, businesses are getting double the peace of mind for half the time. Christian Müller, Chief Finance Officer at Moss, a spend management platform, explains how he thinks Making Tax Digital could be the catalyst for growth and internal change many SMEs have needed to jump into the digital world.
Making Tax Digital for VAT, aka MTD, is just one ingredient of the Government’s strategy to digitise the tax affairs of individuals and businesses in the UK. It’s almost hard to believe that MTD came into effect over three years ago, back in 2019, yet there are still some blurred lines for small businesses.
In simple terms, MTD is mandatory for all VAT-registered businesses with a taxable turnover above the £85,000 VAT threshold to keep digital records and process their VAT return information through MTD-compatible software.
MTD aims to deliver a modern, trustworthy tax system, simplifying the tax process and supporting the UK in its goal of going digital.
And the expectation is that by signing up for MTD, businesses will quickly reap the rewards, which include reducing errors and saving valuable time when managing tax affairs, which in theory sounds very promising.
You’d think that with almost 1.6 million taxpayers having joined MTD for VAT and more than 11 million tax returns successfully submitted as of December 2021, the scheme was rather popular – yet things seemed to have taken a slight tangent earlier in 2022 when the MTD requirements were extended to all VAT-registered businesses, including those that fall below the £85,000 threshold.
Having passed the November 1st cut-off, unsurprisingly, the scheme now includes many previously excluded small businesses – so what does this mean for the future?
MTD opens up a new world for SMBs
During trial periods, businesses reported experiencing several benefits from using MTD-compatible software. There are an array of reasons for this, but the most apparent benefit is rooted in the fact that MTD-compatible software is built from the ground up to help be accurate and reliable.
The whole purpose of the software is to help get taxes right the first time – a notoriously difficult task that requires you to have confidence that the data you are reporting is accurate and not subject to time delays.
The software tackles one of the most common pain points for businesses and individuals alike; gone are the days of submitting your taxes and worrying for weeks about getting a call from HMRC telling you that something isn’t right! With new taxation software, businesses are getting double the peace of mind for half the time. Win-win.
Also, having software in place to make record-keeping as streamlined as possible means introducing new digital tools to help. Companies can centrally store all their data, which removes the need to switch and change between numerous systems.
Tasks that were previously done manually can be automated, resulting in significant time saving across the board. When it comes to the day-to-day functioning of businesses – whether a sole trader is keeping their books, or an accountant in charge of tracking transactions on a larger scale, digitising the process makes the whole operation more efficient.
However, the largest opportunity created by MTD may not be related to taxes at all. MTD could be the catalyst for growth and internal change many SMBs have needed to jump into the digital world.
Many providers of MTD-compliant software can help small businesses with much more than taxes. Spend management solutions provide businesses with the means of tracking and controlling all company spending and saving time by automating manual and time-consuming processes.
These solutions improve productivity within finance teams by giving them increased visibility on business transactions, using data analytics to highlight spending trends, automating month-end reporting and more. This is useful for complying with MTD requirements since it hugely reduces error by automating previously manual tasks and increasing the trustworthiness of data fed into reports.
Even though this is a government-backed initiative, businesses thrive from real-time accounting data, along with many finance professionals. It’s incredibly exciting that businesses can now make data-driven decisions in real-time, which in turn helps them run more efficiently, look after customers better and explore new monetisation opportunities.
SMBs are buying into digitisation
Over half of accounting professionals have already dived head-first into digitisation, with 57% agreeing that accounting will become entirely cloud-based or automated within the next few years as the industry embraces greater levels of innovation.
There is buy-in from the professionals, which is seeing new doors for competition to walk through within the accounting software market.
Of course, the power to transform SMBs and ensure their success lies with the decision-makers, who hold the key to selecting the right, tailored solution for their company. However, to be successful, what is needed among those decision-makers is an acute awareness of their business needs and the various solutions that exist to serve them.
The greater the understanding is among those in control of business finances, the easier it is for them to make the right decisions and bring technology on board that either gives them a holistic view of their operations and enables them to make better business decisions or fits easily into their existing portfolio of solutions. Either way, the result should be a significant value-add. Ultimately, buy-in into the right solutions can lead to investment which drives even greater innovation in digital services.
In the case of spend management solutions, we are already seeing companies with a need to streamline accounting processes and increase efficiency benefit immensely.
The evolution to expect in years to come
The tech in this area has already been improving rapidly, but November’s MTD deadline acted as a further motivator, with all newly-established VAT-registered companies entering the market in need of compliant software to support their business journeys.
Digital spend management tools are already delivering on invoice management, reimbursements, cash flow insights and automated accounting to help businesses streamline their internal operations and focus on their growth strategies – all in addition to helping them comply with MTD requirements.
In years to come, we expect to see those that have already invested benefit from more accurate data and a more straightforward taxation process, time and cost savings, and more agile and reliable financial operations.
All this is being delivered as a result of the leap towards digitisation provided by the MTD decision and will result in far greater investment into the sector in the near future. Those businesses that continue to prioritise digitalisation and tech investments will be the ones that reap the rewards.