By Stephanie Spicer
Small businesses and SMEs in the UK are facing a new challenge as the government’s Making Tax Digital initiative is set to extend to businesses with turnovers of less than £85,000 by April 2022. This means that even small businesses will be required to keep digital records and submit their tax returns online. While this may seem daunting, there are steps that small businesses can take to comply with Making Tax Digital and ensure a smooth transition. Here are five steps that small businesses can follow to prepare for Making Tax Digital.
Step 1: Understand the requirements
The first step in complying with Making Tax Digital is to understand the requirements. The initiative aims to make tax administration more efficient, effective, and easier for businesses and individuals. This means that businesses will need to keep digital records of their income and expenses using compatible software and submit their tax returns through HMRC’s online portal. It’s important to familiarize yourself with the requirements and ensure that your business is ready to meet them.
Step 2: Choose compatible software
To comply with Making Tax Digital, businesses will need to use compatible software to keep digital records and submit their tax returns. This software must be able to connect to HMRC’s systems, so it’s essential to choose a reputable and reliable provider. There are many software options available, so it’s important to do your research and select the one that best suits your business needs.
Step 3: Set up digital record-keeping
Once you have chosen compatible software, the next step is to set up digital record-keeping. This means recording all your business transactions digitally, including sales, expenses, and VAT records. The software will then use this information to calculate your tax liability and submit your tax returns. It’s crucial to ensure that all your records are accurate and up-to-date to avoid any potential issues with HMRC.
Step 4: Get familiar with the submission process
One of the main changes with Making Tax Digital is that tax returns will need to be submitted through HMRC’s online portal. This means that businesses will no longer be able to submit paper returns. It’s essential to get familiar with the submission process and ensure that you have all the necessary information and documents ready to submit your tax returns on time.
Step 5: Seek professional advice
Complying with Making Tax Digital may seem like a daunting task for small businesses, but it doesn’t have to be. Seeking professional advice from an accountant or tax advisor can help you navigate the process and ensure that you are fully compliant. They can also help you identify any potential tax savings and ensure that you are not overpaying on your taxes.
In conclusion, the government’s Making Tax Digital initiative is set to extend to small businesses in the UK, and it’s essential for businesses to prepare for this change. By understanding the requirements, choosing compatible software, setting up digital record-keeping, getting familiar with the submission process, and seeking professional advice, small businesses can ensure a smooth transition to Making Tax Digital. Embracing this change can also bring benefits such as increased efficiency and accuracy in tax administration, giving small businesses more time to focus on their core operations. So, let’s take these steps together and make the most of Making Tax Digital.