How to get ready for Making Tax Digital
What is Making Tax Digital?
In a nutshell Making Tax Digital (MTD) means all financial transactions are recorded electronically keeping your accounts up-to-date. These accounts are then delivered to HMRC on a regular basis.
MTD went live for any business paying VAT in April 2019. It was supposed to go live for everyone else April 2020. However, this has been put on hold indefinitely at the moment. There is a chance it will happen in 2021 or 2022.
What can we do to prepare?
Basically there are 4 levels of bookkeeping:
- Shoe Box
- Paper Records
- Cloud Accounting Package
Where are you now? The aim is to get to Cloud Accounting Package level. Then, when you are signed up to MTD, your Accounting Package will activate a button to deliver your accounts straight to HMRC. But what is Cloud Accounting? Read on for advice from Alison Johnson at Dodd & Co
Your Guide to Cloud Accounting
In recent years bookkeeping systems have become far more user friendly.
These systems have been designed with you, the business owner, in mind so that they are easy to follow, offer value for money and they can be accessed from anywhere, anytime on devices such as tablets and mobile phone as well as laptops and desktop computers.
Being in the cloud simply means that the booking systems are on the internet and can be access from anywhere on any device securely.
Why should I use Cloud Accounting?
Up until now, you have either used a paper based system or a spreadsheet on the computer, or you may even have a specific software package that sits on your desktop.
When you want to send this information to your accountant, or to the banks, generally you have a series of choices: you can send it via email; or get a USB pen, give it a password, wrap it in a box, take it to the post office or drive it their yourself!
With cloud accounting, your accountant already has access. No, they are not psychic, they simply long into your accounts package using a secure password and they can see what you can, straight away. As if by magic!
How much will it cost me?
Cloud packages have become very popular with owners of businesses precisely because they are not expensive! They can cost as little as £10 per month (or even less in some cases!), with no hidden upgrades or support packages and business owners see them as incredible value for money.
For those who wish to have, say payroll or stock control, prices can go up, but you can choose how much you spend on these and decide whether they are right for your business.
What are the pitfalls?
- Internet access – dodgy internet connections will give you a bit of a headache!
- Simplicity – while it is simple to use, easy on the eye and value for money, it is not for businesses who require bespoke, complex or networked systems without bolt-ons.
- Security – cloud accounting has the same security levels as internet banking. We would, however, always recommend that you have good passwords and ensure you log out at the end of your session.
What’s in it for me?
The beauty of the system is that the information is real time, accessed anywhere, easy to use and very user friendly.
For example: If your bank manager wanted to see your accounts, an email can be set up to send over a report on say, a quarterly basis or more often if required.
For example: You can go in and on the dashboard (that’s the front screen to you and me) you may see your and balance, how much your customers owe you, your debts and a graph showing profit month by month.
How do I get started?
- Choose a software provider. Quickbooks or Xero are will suit the needs of most small (and bigger) businesses. If you have more complex needs you may need something like Sage.
- Set up your account.
- Get some training to on how to use the software. Tthere are half day training days out there in person or online. You will save time and money in the long run by learning how to use the package from the outset.
- Set up your bank feed.
- Enter your transactions.
- Reconcile your bank account and submit your return.
- Produce your accounts more regularly than once a year… every week if you like!