Prashant Ganti, Zoho Corporation's head of tax, accounting, and payroll products, discusses the long-term benefits of cloud accounting software and the MTD developments that businesses should be aware of.
The United Kingdom's revenue service By creating one of the most technologically advanced tax administration systems in the world, HMRC is leading the digital transformation of business tax returns. Making Tax Digital (MTD), which is now mandatory for all businesses with taxable annual turnover of £85,000 ($104,859) or more, is part of this modernisation.
Businesses with a taxable turnover of more than £85,000 were already processing their tax returns digitally and seeing positive results before April 1, 2022. In July 2021, independent research commissioned by HMRC revealed that nearly seven out of ten (69 percent) businesses saw at least one benefit from MTD.
MTD has made preparing and submitting VAT returns faster (55 percent), and businesses have more confidence that they are getting tax right (53 percent ).
Furthermore, if the process is understood and the proper steps are followed, complying with MTD measures is not difficult. It is certainly worthwhile to comprehend what these measures imply and how they can be implemented in the most efficient and straightforward manner possible.
What is MTD and how does it work?
The traditional, paper-based method of keeping VAT records and returns has largely been phased out, and businesses must now keep records and submit VAT returns digitally.
Businesses with taxable turnover below the £85,000 tax threshold will be required to comply with MTD measures as of April 1, 2022. This is not to say that paper records are useless. Businesses will only need to keep electronic copies of their records, and HMRC will be notified of each transaction.
It is critical that businesses achieve MTD compliance. Unless a business is exempt, submitting a paper VAT return could result in a penalty of up to £400, depending on its VAT exclusive turnover. Other penalties include a penalty of up to 30% of an assessment if businesses fail to notify HMRC of an incorrect VAT assessment within the required 30-day period.
Furthermore, sending a VAT return that is carelessly put together or contains inaccuracies may result in a penalty of up to 100% of any tax understated or over-claimed.
The most straightforward ways to comply
Adopting purpose-built cloud accounting software is one of the quickest, easiest, and least stressful ways for businesses to ensure MTD compliance and improve their documentation and tax reporting. Businesses will only need to think about the software's capabilities before implementing it.
Using the right software is critical for businesses that have already been compliant with MTD. According to a government report from 2021, just under three-quarters of all businesses reported using fully MTD-compliant software to file their tax returns. Following the mandate, it was reported that 87 percent of businesses were using software for MTD purposes.
Businesses can also use the right software to meet deadlines, stay on top of their tax obligations, and make the transition easier. In fact, 67 percent of MTD-compliant businesses said it was simple to sign up and submit their first submission.
It is critical to select cloud accounting software that is compliant by design. This enables businesses to stay on top of deadlines, file taxes directly with HMRC, and ensure that they are always up to date with any new government regulations.
MTD's planned updates
MTD measures will be expanded in April 2024 to include self-employed businesses and landlords earning more than £10,000. Unincorporated partnerships with an annual income of more than £10,000 must comply by April 2025. Finally, MTD is expected to be mandated for corporation tax in April 2026.
Organizations must be ready for these changes in order to ensure a smooth transition while also benefiting from MTD changes. Companies must use MTD-compliant accounting software in order to reap the benefits of a more efficient digital tax recording system. The software is simple to use and will be a worthwhile investment for any company that has not yet implemented it.
By fLEXI tEAM