HMRC’s bid to digitise the tax system will be beneficial to all businesses, making record keeping and tax submissions less time consuming.
Digital transformation may be a hot topic for manufacturers but there’s another that needs attention – Making Tax Digital.
The UK government wants to create an effective digital tax system and its new programme will aim to make that a reality.
Making Tax Digital for VAT, which begins in April, is the first part. Nearly every VAT-registered business in the UK with a taxable turnover above the VAT threshold (currently £85,000) will have to file their VAT returns digitally using functional compatible software.
In the future, other taxes – including corporation tax, income tax and self-assessment tax – will join the programme.
While Making Tax Digital is a UK initiative, it’s part of a global trend. Governments globally are seeking to implement digital data submission to reduce the billions in lost tax revenue that occurs each year.
For the UK, HMRC admits inaccurate submissions result in £9bn in tax being lost annually. However, it understands businesses want to get their taxes right and Making Tax Digital will help them accurately make submissions.
What Making Tax Digital means for manufacturers
HMRC’s bid to have the world’s most digitally advanced tax system means manufacturers will be able to devote less time to admin. Research carried out by Sage revealed that between January and October in 2018, unnecessary admin tasks meant small and medium-sized businesses lost £30.8bn due to a lack of productivity.
Making Tax Digital will aim to reduce the margin for error and provide better efficiency with record keeping, resulting in a productivity boost. We support the streamlining of the tax system, as this will help businesses spend less time on admin.
Preparing for the regulations
Manufacturers need to confirm whether Making Tax Digital for VAT applies to their business. And with a number of deferred and exempt categories, it’s important to check with HMRC if it falls into one of those.
If it does apply (from April or the deferred date of October 2019), the next step will be to review the processes required for their business to generate VAT returns. Manufacturers using legacy systems need to determine whether they can prepare and submit digital tax returns. If not, they’ll have to integrate new systems.
One key change of Making Tax Digital is businesses won’t be allowed to manually put their figures into HMRC’s portal. Sage software connects directly, making submissions fast and effective – manufacturers will need to make sure the right version is being used.
And by using accounting software, the need for multiple data entry across disparate systems is removed, therefore improving efficiency. Alongside automating manual processes, Sage research found a move to digital accounting can lead to businesses saving £17,000 per year.
Get ready for Making Tax Digital
Manufacturers need to let their staff know what changes are happening and when. It’s also worth speaking to specialists such as Sage and accountants now so the business is ready for Making Tax Digital.
Now is the best time to get ready for HMRC’s new programme. Sage has been helping businesses with compliance and legislation for more than 35 years, and we’re here to help manufacturers make the move to digitise tax.