by Steve Lane, CTO at Access Group
The UK Government’s Making Tax Digital (MTD) deadline will arrive in April next year, and UK organisations can’t afford to bury their heads in the sand and put off digitising their financial systems any longer. For the time being, MTD appears to be a cloud of uncertainty hovering over UK businesses, especially when it comes to understanding what the impacts will be. A recent Access Group survey of 300 finance professionals from UK mid-market businesses, found that 1 in 5 finance professionals are unaware of MTD, what it means and when its imminent deadline is due to hit.
Making Tax Digital will require UK businesses with annual turnovers above the £85,000 VAT threshold, to keep digital records for VAT and submit their returns digitally. The points-based penalty system means business taxpayers accrue points with each late submission of an MTD report, those with multiple businesses must submit tax reports for each of their businesses. To ease the transition process, HMRC is allowing the use of ‘bridging software’ to support the digitised submission and account information retrieval from spreadsheets. However, some risk not having the systems in place to do so as they carry out business as usual.
While the respondents from Access Group’s survey use some form of electronic system for financial management, 96 percent of mid-market businesses still process a portion of their tax returns manually, for example, performing off-system calculations. This will be a big red flag come 1st April if businesses fail to use bridging software appropriately to support the digital submission of their VAT returns. The question is then, why do they continue to rely heavily on manually calculating? Over a quarter of the finance professionals surveyed explained that they haven’t transitioned to 100 percent digital processes due to a lack of knowledge and training (26 percent), while others said it’s the fact that multiple legal entities are involved in VAT registration (23 percent).
The bottom line for businesses, is that the traditional process of manually entering VAT is inefficient and prone to human error. Under the new regulations, mid-market businesses could stand to lose not only money in fines, but credibility within their respective marketplaces. Ignoring or putting off making the necessary technical changes to your business is no longer an option.
However, there are some considerations that businesses shouldn’t gloss over. For example:
- Business transformation: Implementing new or upgrading existing business software isn’t always an easy decision. Particularly when there are various ways to ensure your organisation remains compliant with government regulations. Considerations need to be made for either full business software transformation or a single solution update, for example, bridging software. Given the impending deadline, businesses must ensure they’ve put in place measures that abide by the new regulations.
- Certifications: When deciding to begin a digital transformation project, particularly when it comes to digitising financial systems, choosing a partner that has the proper government accreditations or certifications is paramount. Acronyms like ISO or IL are key ones to look out for.
- Efficiency: Digitising financial systems offers the business not only a more efficient, and free of human error way of working, but a more productive way as well. Entrusting admin-heavy tasks to intelligent software can free up time elsewhere to focus on innovation, business development and growth ambitions.
In the coming months it will be a top priority for businesses to ensure their financial systems are all set for the 1st of April deadline. But, there is another consideration outside of tax compliance alone, that businesses would be remiss to forget. It’s the perfect opportunity for UK business’ senior management teams to take a broader perspective – one that turns this regulatory burden to the business’ advantage. Greater efficiency and productivity is up for grabs, driving both business growth and profitability should businesses implement the right solutions. That being said, time is not on businesses’ side. Given the Governmental pressures placed on organisations to digitise and the complexities that go into technology investment, mid-market businesses need to ensure their finance departments remain compliant, avoid fines and support the growth of the business, in the new era of digital tax.
