This April, the government rolled out its Making Tax Digital initiative – a new set of rules designed to encourage the digitisation of record keeping, improve accuracy and reduce errors all round. To some, the new rules came as a shock – yet, with the latest tax gap figures revealing the cost of mistakes to taxpayers was £9.9 billion last year, the push towards the digitisation of tax comes should come as no surprise.
In Scandinavia, efforts to enhance operational efficiency and improve transparency has already seen thousands of organisations in the Nordics adopting custom digital software to record and submit their taxes. As well as making it more difficult to defraud the system, these forward-thinking organisations have capitalised on the digitisation of tax as an opportunity to make a change in the day to day running of their business.
- Enabling accurate reporting
An overreliance on antiquated systems is a recipe for disaster when it comes to accounting and recording tax: just one mistake could result in financial penalties that affect everyone in the business. Through the use of sophisticated, cloud-hosted accounting software, organisations can identify and rectify tax errors as soon as they occur. With this in mind, Making Tax Digital is not merely a piece of legislation, but a firm encouragement from the government for business to move away from cumbersome processes to efficient financial reporting.
- Improving access to data
Compliance with Making Tax Digital demands organisations to employ software that allows for the submission of VAT returns, as well as keeping records of sales and purchases. When an organisation goes paperless in favour of cloud-based accounting solutions, they benefit from real-time access to financial data wherever this may be located. This can be game changing for organisations with employees, who often work remotely or are dispersed across several offices.
- Bringing accounting in-house
While many firms choose to instruct external accountants to calculate and file their tax returns, the digitisation of tax grants organisations the possibility to save on costs and keep this function within the walls of the business. Instead of outsourcing, the adoption of cloud-based accounting software that allows for VAT calculations could see a growing number of organisations recruiting a talented in-house accountant. This strategic new hire could harness technology to complete the same tasks at a lower cost and communicate directly with staff.
- Creating cost efficiencies
By removing the need for an expensive IT team, physical hardware or, potentially, an external accountant, adopting cloud-based accounting software offers organisations the chance to keep their costs to a minimum in the push towards the digitisation of tax.
- Encouraging efficient financial management
Shifting away from outdated processes and adopting right digital solutions can have significant benefits on a business’ bottom line – and when it comes to tax and accounting, enhancing efficiency should be a top priority. The advent of Making Tax Digital will see businesses increasingly move from paperwork and clumsy spreadsheets to user-friendly interfaces that provide a holistic view of cashflow and encourage new ways of managing their finances.
Tax, it seems, is the final frontier of digitisation, a worthwhile transformation that is long overdue. But rather than seeing as another string of regulatory red tape to comply with, organisations should embrace Making Tax Digital as the opportunity it really is.
Many charities and not-for-profits are choosing to move from costly on-finance premise finance systems to a modern cloud-based ERP solution. At Xledger, we specialise in the charity sector and work with a wide variety of clients. Contact us to find out more.