Making Tax Digital (MTD) is a piece of government legislation which is likely to be enforced from April 2018. It will require most small businesses to send HMRC details about their revenue, profit and expenses every quarter, rather than annually.
If this is the first time you’ve heard of MTD, you’re not alone; a survey in February suggested that 65% of SME businesses are not ready for tax digitalisation.
Unfortunately, if you don’t start making changes to your accounting regime now, you’ll likely run into some tricky issues once MTD comes into play.
Why is MTD being introduced?
The reason behind Making Tax Digital seems admirable; it’s designed to make the tax process easier for small businesses, and if there’s one thing at which most social entrepreneurs will roll their eyes, it’s ‘doing the books’.
MTD is all about streamlining the process, which should come as a relief to anyone who has to sort through invoices, purchase orders and receipts every year in order to file a tax return.
Instead, the new legislation will ask small business owners to use a digital method of submitting information about their finances to HMRC throughout the year.
As you’d guess, the word ‘digital’ means many social enterprises will need to review their accounting software to ensure they can meet the demands of MTD.
How to prepare for MTD as a social enterprise
Thankfully, there are plenty of fantastic options when it comes to modern accountancy software (which lies at the heart of the MTD requirements).
But how do you know where to start?
We think your social enterprise will fall into one of the following three categories:
1. You’re completely new to digital accounting
Good news – even if you’re new to digital accounting, there’s a high chance the processes you currently undertake will translate relatively easily to software-driven accounts.
The first step is to find accounts software that appears easy to implement, approachable and which is cost-effective for your social enterprise.
Speak to fellow entrepreneurs, you accountant or colleagues – there’s nothing better than getting a software recommendation from someone who has benefitted from it previously.
2. You’re currently using Excel to do your accounts
Again, you’re not alone! What’s more, the fact you already have your numbers in the digital realm should set you in good stead for the move to a proper accounting platform.
Have a chat with your accountant – they may be able to recommend accountancy software which will link you in with their way of working, and if you can find one that will import data from an Excel file (most do), you’ll save a whole heap of work during the transition.
3. You’re already using accounting software
This is great news. Providing you’ve picked the right vendor, you should find that they’re already geared up to help you with MTD.
A software update might be required, or you might simply need a bit of additional training in order to unlock elements of the system you didn’t know existed.
Speak to the vendor and get the low-down on MTD!
MTD is just good business practice
Although MTD is yet to take hold, it should be a far more convenient way for small businesses to go about their accounts duties.
Whether or not this becomes a reality will be revealed next year, but one thing is for sure – your social enterprise needs to be ready for MTD.
- Speak to your accountant to get some advice on the best software platform to use
- Speak to your existing accounts software vendor (if you have one) to check they are ready for MTD – the best will be able to offer invaluable advice