– This article was last updated on 20 September 2021-
It sounds great in theory, HMRC’s Making Tax Digital initiative (MTD). All your information in one place, easier filing, no tax surprises…. well, hope springs eternal that at least filing could be made easier, but the department’s timeline seems rather aggressive, its ambitions pie-in-the-sky, and the coming reality problematic for millions of UK small and mid-sized businesses. But other than adopting ExpenseIn as your expense management software, what should you be planning for?
Get the Right Tools
There are other software packages that you will need, such as for filing tax returns or doing bank feeds for your business income; when you’ve set up a bank feed, be sure you are correctly categorising all transactions. Good data in will equal good data out when it becomes time to file returns. Spreadsheets will not be allowed in HMRC filings, so you will need software that feeds into their system, though they are saying at this time that they will ensure the availability of free applications.
Get the Help You’ll Need
It is unavoidable that a budget will be necessary for accounting services, so if at all possible, plan now for this expense. The aspect of MTD that is causing the most anxiety is mandated quarterly reporting. Several accounting industry groups have tried and, so far, failed to have this requirement removed or put off even longer. Accountants who deal with small businesses have howled that they would rather retire than face the avalanche of work coming their way. Whether you are starting from bags of paper receipts or are used to regular dealings with HMRC, it will take time to adjust your processes to accommodate quarterly reporting.
A quick perusal of the comments on AccountingWeb’s articles about MTD shows that most accountants are extremely sceptical of the proposal, with the fair criticism that many HMRC inspectors are not, in fact, accountants themselves and thus have no idea how burdensome the reporting will be for most small businesses.
Richard Murphy of TaxResearch.org.uk says on his blog, “What HMRC seems to think is that accounting is just an exercise in totting up the books. It isn’t.” But regardless of the fair criticisms being levelled at HMRC, the fact is that some form of this digital tax structure is imminent. Whitehall has come too far to turn back now – meaning that digitising your expense records with expense management software will be more important than ever.