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Why is it so important to make sure that your finance management software is MTD compliant?

2nd Aug 2019
Brought to you by
downlaod

The Access Group provides integrated business management software.

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The Making Tax Digital (MTD) scheme is a major pivot for the Exchequer, and it’s one that is designed to change the way that the revenue is collected by the government.

For those who are in financial leadership positions in organisations, now is the time to ensure that you have the software you need to keep your organisation compliant. This article will explain what is required for compliance both in the short term and in the long term.

What is MTD?

Before looking at the implications of non-compliant management software and its relation to MTD, it’s first important to look at exactly what MTD is. MTD is an important scheme devised by Her Majesty’s Revenue and Customs, or HMRC, to try to cut down on the amount of cash lost by the Exchequer.

It’s believed that manual keying errors or other avoidable mistakes by taxpayers are costing the government £9bn per year – and so action needs to be taken. As a result, VAT taxpayers now have to file under the requirements of MTD – and the same is soon going to apply to other taxpayers, such as income and corporation taxpayers.

What happens: short term

Right now, what will happen to you if you don’t make your management software MTD compliant depends on your exact circumstances. If you’re not a VAT taxpayer, then a non-compliant system is not a problem just yet.

There’s also a “soft landing period” to take into account, which applies even if you are a VAT-registered business: while in the long run, you won’t be allowed to cut and paste information from one record to another, you will be able to do that for a year even if your software packages aren’t linked up.

The costs of not doing this can quickly mount, though. You’re at the mercy of finding yourself fined 2% or more if you default on your return more than once, and if you’re found to have made a manual error in the future then HMRC may investigate you and go back six years.

And that’s before you factor in the lost productivity: spending time filling out a tax return is time you could have otherwise spent on profit-making activities, so it’s in your interests to switch too.

What happens: long term

However, the exceptions are not going to be around for long. The above exception will only last for a year, and then it will be essential to use compliant software. If you’re currently not a VAT taxpayer, then it’s also in the long term rather than in the short term that you’ll be affected.

While your management software is permitted to be non-compliant at the moment, over time – and probably within a couple of years – you’ll need to make sure that it is. It’s advisable to make the switch to a compliant software package as soon as possible – otherwise, you may find yourself running out of time or experiencing teething problems when the time for it does come around.

MTD looks set to create change for finance leaders in all environments. While the pressing priority is for those who are paying VAT, those who pay corporation and income tax will find that in the long term, they too will need to be sure that their management software packages are MTD-friendly.

In short, now is the time to make a change so that you won’t be caught out without appropriate software when the changes do begin to affect you.

Check out how we can help you to become compliant with MTD.