The HMRC is engaged in an initiative to digitise all tax filings in the UK by 2020. The transition to digital tax filings will require taxpayers to adopt software that maintains digital records of all their financial transactions. While making tax digital is a government initiative, firms stand to benefit immensely from digitising financial transactions and extracting tax filings from the accounting software. We have compiled some of the potential benefits of digital tax filings.
The digitisation of financial transactions will make internal accounting functions more effective, as accountants will not need to balance the books manually. Instead, the software will do the calculations automatically by collating information from different transactions. The digital tax filings will be more accurate than manual filings as automation will reduce the chances of making errors. This will save accounting time and increase the efficiency of accounting staff. Meanwhile, small businesses will reduce the cost of hiring accounting consultants to prepare their tax filings as the filings will be produced automatically on their HMRC account.
Timely Tax Filings
Most firms wish to submit their tax returns on time but end up making late filings due to complications that arise while analysing financial transactions. Such firms end up incurring penalties of up to 20% of the taxable amount depending on the length of the delay. Making tax digital will reduce the time it takes to analyse financial transactions. Moreover, the software will flag discrepancies enabling accountants to quickly make corrections. The superior capabilities of digital accounting will reduce the risk of making late tax filings.
Managers of firms that do not use sophisticated accounting software may not realise the benefits of having a regular supply of financial data. However, with the digitisation of financial transactions, managers will have access to real-time data about their business. They can use this data to analyse situations and improve their decision-making. Ultimately, the firm will benefit from enhanced decision-making in terms of improved resource utilisation and productivity.
Overall, Making Your Tax Digital Will:
• Reduce accounting errors
• Improve the productivity of internal accountants
• Reduce the cost of hiring tax consultants
• Reduce the risk of tax penalties
• Improve managerial decision-making.
We have extensive experience in digitised accounting and will guide you on how to digitise your financial transactions and develop a customised tax structure for you. We offer consultancy on tax compliance as well as digitised accounting on the Xero platform. Contact us for further details.