The Cloud is Truly the Way for Making Tax Digital
Making Tax Digital has gathered great administrative fervour in the UK. As a governance policy, this is true of any progressive country. As everything gets digitalised, the taxation system surely cannot be an outlier. Bookkeeping, which forms the basic fabric of taxation, has had to follow suit.
The intent behind Making Tax Digital, introduced by HMRC, was to bring in efficient promptness and transparency to the tax submission practices. Precisely put, it was to ‘reduce the tax gap’ by ‘eliminating errors’ that cause ‘tax losses’ by ‘integrating tax management with a range of business processes through software’.
It is true that the digitalisation of bookkeeping and accountancy was achieved through spreadsheets and other stand-alone/desktop applications. However, these tools have several limitations that could not have actuated the core Making Tax Digital objectives. Especially, one of the crucial governance objectives of ‘digital records being sent directly to HMRC’ was a hard one to achieve. These limitations can only be overcome through cloud-based bookkeeping and accounting software. This, principally, is the reason why HMRC has endorsed software products that are compliant with Making Tax Digital.
Benefits of Cloud-Based Bookkeeping and Accounting
The benefits of cloud-based bookkeeping and accounting software—like Xero, QuickBooks, Sage, and others—are palpable in this context. The primary strength of such software is that the records are maintained on cloud servers that are more secure than legacy accounting software. The data stored on them is encrypted and is difficult to be accessed or altered by any third party. Also, there are secure backups to mitigate the loss of data due to any act of humans or natural mishaps. This is certainly a powerful feature that implements the Making Tax Digital objective. Such data security is also, indeed, good for the financial health of businesses.
Further, the most desirable utility of cloud-based bookkeeping software is the ease of access and collaboration. Business leaders and their in-house or outsourced accountants can go mobile and easily visualise and manage financial records over the Internet from anywhere. Equally important is their power of synchronisation of teamwork with all the pertinent stakeholders to achieve consistency and transparency in real-time. This ensures that the digital records sent directly to HMRC are clean, which is what Making Tax Digital smiles upon. Without a doubt, this compliance is advantageous to business owners, as there is a deft avoidance of manual errors due to automation.
Another important benefit of Making Tax Digital, as stated by HMRC, is to ‘contribute to wider productivity gains for businesses by encouraging digitalisation’. With cloud-based bookkeeping and accounting, this benefit is also definitely realised. For instance, considerable cost benefits can be reaped by using cloud accounting software. Firstly, they are subscription-based and hence don’t need purchases or licence renewals. Secondly, the costs incurred due to hardware requirements of desktop accounting software, and the consequent office space required, are saved. Thirdly, there is less requirement for a trained, skilled and experienced IT workforce needed with cloud-based systems in place. These are the benefits that are additional to the ease, efficiency and transparency that they bring in.
All in all, cloud-based accounting makes the taxpaying individuals and companies and HMRC countenance each other with a smile of being on the same page with respect to Making Tax Digital.
SmarTax provides expert cloud-based bookkeeping and accounting services with software like Xero, QuickBooks and Sage endorsed by HMRC. SmarTax helps your business be Making Tax Digital compliant.