Written by: Jasmine King

Digital Tax Compliance Explained

In April 2019, the government introduced making tax digital. This means businesses must keep digital records of their accounts and send quarterly or yearly updates of their VAT returns to HM Revenue and Customs (HMRC). However, implementing the right tools for your business and ensuring you comply with those requirements is not as easy as it seems. That is why the SW&P team has put together a guide to explain the importance of digital tax compliance.

What is Digital Tax Compliance?

Digital tax compliance refers to the actions a business undertakes to fall in-line with the Making Tax Digital Legislation (MTD). The legislation applies to all businesses, although a small number can apply for an MTD exemption.

Complying with the digital tax rules is likely to involve changes to your day-to-day bookkeeping processes. Over time, manual bookkeeping and ledgers are set to disappear. Instead, you are now required to log all receipts and invoices into a MTD compliant application.

Compliant Accounting Tools:
Currently, it is only companies that are VAT registered that must comply with the MTD legislation. In the long term, the tax system is set to be digitized with the government introducing MTD for Income Tax in April 2026 for business or property income over £50,000 and in April 2027 for business or property income over £30,000.

This is why it is more important than ever to ensure your accounting tools are MTD compliant. To be compliant with digital tax requirements, the software must allow you to keep digital records and submit your VAT Returns. However, these accounting tools aren’t always easy to use, that is why we recommend you contact your accountant to get help with the initial setup.

Digital Tax Compliance Roadblocks

Once you have registered your business MTD, you can start submitting your VAT Returns online. However, it isn’t always plain sailing and as with all new systems, there are pain points that must be addressed.

1. Breaking old habits
   Many businesses still use ledgers to do their bookkeeping, this might be because they don’t have the capital to invest in a bookkeeping app or because the owner isn’t tech savvy. In those cases, SW&P can help you choose the app that is most suitable to your business so that you can fully comply with MTD.
   
   
2. Keeping with deadlines
   MTD offers businesses the option to choose between yearly and quarterly reporting. Even though submitting your VAT returns quarterly means you have a clearer vision of how your business is doing and reduces the potential for any mistakes, it takes you away from operating your business more often.

Avoid Stress, Talk to Your Accountant
Switching to a digital accounting system can be stressful as it requires a change of mindset and additional resources. That is why at SW&P we put client relationships first because we believe your time is best spent operating your business. That is why we are more than happy to help you with digital tax compliance you may face.