Will making tax digital make business easier for SMEs?

Cloud technology and real-time insights could help SMEs with everything from cashflow management to tracking invoices but the training needs to start now

Will making tax digital make business easier for SMEs?

The government is set to unveil its Making Tax Digital plans, which will allow small businesses to see what feedback it’s taken on board and how long it will take to implement the changes. The goal is to make the system more accessible and transparent by 2020 but will it really solve the top problems faced by SMEs, or will it be more pain than gain?

More accurate data

It’s no secret that many SMEs find it hard to maintain up-to-date records and avoid inaccuracies. The obligation to move to the cloud is likely to change bookkeeping processes and other related procedures. Up until now, expenses and invoices have typically been manually inputted; the cloud will allow this data to be read and fed into the software automatically. The software will then feed this data into the digital tax accounts, reducing the likelihood of human error taking place.

Cloud accounting replaces the once commonplace practice of the business owner having to track client payments and organise supplier invoices, making it easy to ensure their accounts are always up-to-date. Making Tax Digital aims to work in as close to real-time as possible. The idea is that data will be fed directly from financial sources and bank accounts to the appropriate field in the digital tax accounts, which should improve data accuracy for tax calculations.

Easing cashflow woes

For business owners who find that managing their cashflow is one of their biggest struggles,  the introduction of Making Tax Digital – and its requirement to report using cloud software – should make business forecasting more effective. The proposal to make tax payments quarterly will also mean that rather than having one large tax bill at the end of the year, businesses will make smaller but more frequent payments, which should ease some pressures on their cashflow.

The hope is that using the insights from integrated apps to get a more up-to-date, almost real-time view of their finances will allow business owners to make more informed investment decisions and take a global view. What’s more, being able to analyse the success of a task throughout the month can help with forecasting profits and potential investments.

Roles and responsibilities 

Automation is already changing many job descriptions and making it more important than ever to source the best staff with the right digital skills. Making Tax Digital is anticipated to cost a small business in the region of £2,770 a year, which takes into account up-skilling, software, migrating and employing an adviser. This is likely to be far higher than many small businesses are currently spending on accounting support.

There are some predictions that Making Tax Digital will change many accountant-client relationships as tax returns are replaced by pre-populated digital accounts that SMEs will be able to manage themselves. But if you’ve always employed an accountant to do this, you probably shouldn’t let them go just yet. Your accountant will know a lot more about tax exemptions and benefits and they’re better placed as being able to organise your tax liability efficiently.

While the timetable for implementation has been questioned, the more organised your business can be, the easier the eventual transition will be. There are no shortcuts; this will demand thorough planning and an education process for your staff. Whilst there have been calls for a delay in the implementation date, it’s a case of when and not if Making Tax Digital is introduced. Transitioning won’t be an overnight task and you may experience some short-term costs but the efficiencies should be visible almost immediately, which will hopefully make tax a little easier to tolerate.

This article comes to you courtesy of Myers Clark, the chartered accountant firm that’s been giving businesses financial guidance since 1912.


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