Making tax digital and cloud accounting – is it right for your business?

By Chris Barlow, partner at Birmingham-based MHA MacIntyre Hudson

From April 2019, HMRC has stated that VAT registered businesses have to provide their VAT returns in a digital format and that it will be a requirement to report Corporation Tax and Income Tax digitally.

Initially, MTD will focus on VAT registered businesses with taxable turnover above the VAT threshold (currently £85,000), the exceptions being group VAT registrations, overseas based traders, those required to make payments on account and annual accounting schemes in general.

This means that, from April 2019, businesses will no longer be able to submit their VAT returns through the Government Gateway and will be required to use MTD-compatible software.

Alternatively, they can use a bridging tool as a temporary solution until April 2020. The bridging tool will effectively require a digital export of the VAT summary information which will link to the bridging tool to allow integration with HMRC systems.

HMRC have created a list of approved software providers for submissions for VAT return submissions.

Cloud Accounting Advancements

The accountancy world has changed over recent years with advances in software replacing many manual processes and hand-written cashbooks. Where early versions of the software were cumbersome, and time consuming, recent developments has provided improvements to the process and changed the way businesses prepare accounts, giving access to real time, up to date information.

The market for this software is crowded and often confusing, but some of the more commonly used cloud accounting packages include Xero, QuickBooks Online, FreeAgent and Sage Business Accounting. All of these offer users many benefits including:-

Ability to access real time data via an internet connection;
Improved processes and controls;
Strong cloud security with data stored in safe and secure locations;
Automatic updates to cloud software;
Sophisticated cloud solutions can be created to improve efficiencies and provide the user with greater insights into their data.

As well as the benefits above there are also further efficiencies possible with the additional use of add-on applications called “apps”. These apps “bolt on” to the main accounting packages and offer extra features such as the development of optical character recognition (OCR) software. This allows an employee can take a photo of a receipt via the application’s mobile phone app. The photo is then processed and the entry is posted in the accounting records with a digital image of the receipt or invoice attached to it. Not only does this make the entry more complete, it also means that the business no longer needs to keep a paper copy of the entry as the digital one will suffice.

Is cloud accounting right for your business?
Moving a business to cloud accounting is dependant on many factors, and given the increase in the use of software by HMRC it’s probably a good idea for businesses even if they are not ready yet to move over, to start to consider their options and look for the best fit for their business.

The developments in this area are only going to continue and probably at a much faster pace than we’ve seen so far, so its better to start preparation now than be caught out.

For more information on how we can help your business with cloud accounting, contact Chris Barlow on chris.barlow@mhllp.co.uk or call 0121 236 0465.