Our businesses are online, our banking is online, our insurance is online, our mail is online, heck, even our cinema tickets are online. So, why are so many eCommerce businesses still using spreadsheets and, dare we say it, jotters, when it comes to business accounting? Luckily, things are about to change as phase one of Making Tax Digital for eCommerce comes in, putting an end to old practices.
What is Making Tax Digital?
Back in 2015, the UK government announced plans to get businesses digital by taking tax submissions online and making digital records mandatory. The initiative, known as Making Tax Digital (or MTD for short), aims to make tax easier, more efficient and more effective, reducing the £33 billion tax gap in the process. While many eCommerce business owners are cursing the extra admin, cost and stress of MTD, eCommerce expert Expandly, believes that MTD is the push that all eCommerce business owners need.
What does Making Tax Digital mean for eCommerce?
MTD is set to revolutionise the way that eCommerce and other businesses across the UK report and submit their tax returns. Digital records will be mandatory, submissions to HMRC will be quarterly, and tax returns will be filed electronically. And, of specific note to eCommerce businesses, copying and pasting financial information between digital platforms is expressly prohibited.
For more information on exactly what eCommerce businesses need to do to comply (and when), visit out MTD eCommerce guide here.
Why is Making Tax Digital coming into force?
As the saying goes, tax can be taxing, and recent figures back this up with a 5.7% tax gap – demonstrating that tax is difficult to get right. MTD aims to change this, pushing businesses to keep on top of their financial affairs, reducing the risk of tax return errors and keeping HMRC updated.
Is Making Tax Digital a good thing for eCommerce businesses?
Thousands of businesses across the UK are harnessing the power of eCommerce software and technology to run incredibly successful businesses. But, many are supplementing this innovation with old-school spreadsheets and paper returns. Not only is this outdated but it’s time-consuming, unnecessary and prone to errors.
Making Tax Digital is set to change this, with benefits including:
– Automatically generated reports
– Real-time ledgers
– Populated, sent and chased invoices
– The pulling of expenses from bank account data
– Up-to-date financial information for business owners and accountants
– Accurate information with fewer errors
– Easier tax returns that are correct and on time
Overall, it will streamline eCommerce businesses – removing the need to conduct these tasks manually and giving businesses owners more time to invest back into their business.
Is Making Tax Digital a bad thing for eCommerce businesses?
We don’t think so. The benefits above far outweigh any negatives, and in any case, the commonly raised negatives are quickly refuted.
Yes, if you don’t already use cloud accounting (such as Xero) or multichannel management software you’ll need to, but the small monthly cost is more than covered by the time and mistakes saved, and the ability to scale easily.
The penalties for non-compliance are still to be confirmed, but whatever they are, we anticipate that the overall reduction in late and incorrect tax return penalties will negate this.
The need for invoice-level data does remove the ability to just record month-end invoicing totals, but with software automatically generating, chasing and consolidating invoices, we think the time saved far outweighs the time lost.
Cloud accounting and multichannel management software might come with functions that you don’t currently use, but since both are designed to save you time and money, you’ll likely wonder how you ever managed without them. Even better, you’ll get deep insights into your business, allowing you to make sound company decisions to drive your business forward.
Small eCommerce businesses under the VAT threshold will need to monitor their turnover closely, but with the benefits listed above why not join the rest of them and take part in MTD voluntarily.
How to prepare for Making Tax Digital?
eCommerce businesses exceeding the VAT threshold need to ensure that they’re MTD-VAT compliant by 1 April. To find out more on exactly what you need to do and by when, visit out eCommerce Making Tax Digital guide here or visit the government’s website here.