HMRC’s "Making Tax Digital Initiative"- Why Now Is The Time To Switch To Cloud Accounting

HMRC have announced their intention to launch their “Making Tax Digital” initiative. The initiative is set to transform the system of taxation completely by 2020. In light of this, now is the perfect time for businesses to update or review their present accounting system- or lack of. Additionally, businesses should take this time to be proactive in order to be completely ready once the changes are enforced.

The initiative will require businesses, irrespective of size or turnover, to be utilising some form of digital package for their accounting. A further change is that HMRC intend for all businesses to file four quarter tax return forms, instead of the present single annual tax return. Additionally, it will be required that these forms are directly submitted to HMRC, from the businesses accounting software. This process will require that records are consistently accurate and up to date.

A further announcement about the initiative is that HMRC will only be accepting records that have been kept using software that is compatible with their online software. In order to ensure that your accounts are correct it makes sense that your account has access to your accounts prior to submission. This can be easily and effectively achieved using cloud software. Further advantages provided by this method of operation are that there is no need for backups to be kept, and that there is no time lost as a result of the transfer of information.

When looking for a cloud accounting package for your business to ensure you are ready for the Making Tax Digital Initiative, you need to ensure that three criteria are met:

• The package should be user friendly and straight forward to operate.
• Your chosen cloud accounting package needs to be compatible with HMRC.
• It is important that the package provides the ability to accurately report on the period required.

Currently, the software package “Xero” is being put forward as the optimum solution. This is due to the links the company has already established with HMRC, meaning that instant integration will be provided in 2020 and all information contained will be transferred effectively and accurately. From a user’s perspective, Xero has been specifically designed to be easy to use for the non-accountant. This makes inputting the required financial information for your business incredibly easy, saving time on previous book keeping methods. Furthermore, Xero can be accessed at any time and from any device, all that is required is an internet connection.