Published Wednesday 13th March 2019
Digital transformation continues to be a topic of interest for the manufacturing industry in the UK, with understanding how businesses can benefit from digitalisation typically at the top of corporate agendas. In these discussions, however, there is one area getting overlooked – the tax system that’s soon to be digitised.
HMRC is bidding to digitise the tax system with the ‘Making Tax Digital’ initiative. This innovative change could be of substantial value to all types of businesses and particularly UK manufacturers, by reducing the time taken for record-keeping and tax submissions.
Making Tax Digital may be a UK initiative but it has been shaped by a global trend to reduce the billions in lost tax revenue occurring each year. HMRC have reported that inaccurate submissions cause an average of £9bn of lost tax revenue a year within the UK. Businesses utilising this programme will be able to file their taxes correctly by ensuring accurate submissions, drastically reducing that lost tax figure.
The programme is set to be one of the most advanced tax systems in the world. Roll-out will initiate in parts, beginning with Making Tax Digital for VAT in April 2019. Any UK businesses with a taxable turnover above the VAT threshold (over £85,000) will be expected to file their VAT returns via the dedicated software. Over time, other taxes will join the programme, including income tax, corporation tax and self-assessment tax.
Making Tax Digital for Manufacturers
The main advantage of Making Tax Digital is reducing the admin time involved with record-keeping and submissions by automating the process. According to Sage reports, between January and October 2018, SME’s lost around £30.8bn because of the unnecessary, manual admin tasks lowering staff productivity rates. This tax software will help to increase efficiency in record-keeping to counteract productivity dips. Furthermore, the programme will assist users by reducing the number of errors submitted that can lead to further issues down-the-line.
One major update of the Making Tax Digital initiative is stopping businesses from manually inputting figures into the HMRC portal. The software connects directly to your business and this is how it will help to streamline submission processes, by removing the need for multiple data entry across unconnected systems. A move to digital accounting, according to Sage research, can result in business savings of around £17,000 per annum.
How to Prepare for the Regulation Changes
Firstly, manufacturers will need to confirm whether Making Tax Digital for VAT affects their business procedures. With a host of deferred and exempt categories specified by HMRC, it’s crucial that you check with them to see if your company qualifies.
If the digitalised tax applies to your business (commencing in April or by the deferred date of October 2019), you will need to review the processes involved with generating VAT returns. Specifically, manufacturers utilising legacy systems will need to assess if they will still be able to submit digital tax returns. In cases where they cannot, new system integration may be required to prepare for the change, checking that the right version is being used.
Preparing your staff will be critical to a smooth transition from manual to automated tax processes. Keep the relevant employees aware of the dates and actions taking place. Additionally, speak to experts in manufacturing procurement, who will be able to help you prepare your business for the switch. It is imperative to begin planning for the change as the first steps commence as early as next month. Get in touch with us today so we can help you streamline your business to be digital tax-ready!