2019 will be a transformative year for many eCommerce retailers, who despite harnessing the power of technology to create their businesses, neglect it when it comes to accounting and tax. This April sees the arrival of Making Tax Digital, a government initiative changing the way that tax is recorded and reported – and eCommerce experts Expandly are here to explain why this is the opportunity eCommerce has been waiting for.
What is Making Tax Digital?
Making Tax Digital (MTD) is an initiative to make tax simpler by mandating digital records and online tax submissions. From 1 April 2019, businesses with a taxable turnover above £85,000 (the VAT threshold) must:
– Keep digital records of certain financial records; and
– File VAT returns using MTD-enabled software.
Next year (April 2020) this will extend, requiring quarterly reporting of financial information and the filing of other taxes (such as corporation and income) via MTD-enabled software.
What Making Tax Digital means for eCommerce businesses
VAT-registered eCommerce businesses must comply with MTD, which means:
1. Keeping financial records digitally
Records of certain financial information must be kept digitally, and, importantly, there must be no manual handling of this information once it is in a digital format.
2. Using MTD-enabled software
MTD-enabled software must be used to send information to and receive information from HMRC, including the submission of tax returns.HMRC approvedMTD software can be found here. Free software is available, but the limitations mean that many eCommerce businesses opt for affordable cloud solutions such as Xero.
The restriction on the manual handling of financial data is especially important for eCommerce businesses, who will need to digitally link data from sales channels into MTD-enabled software without copying and pasting (or manually typing). Software (such as multi-channel management software Expandly) can help, by integrating sales channels and accounting software and allowing information to automatically flow between the two.
In other words, jotters, spreadsheets and post-it note accounting are out – cloud accounting and multi-channel management software are in.
Why Making Tax Digital is an opportunity for eCommerce
Extra admin, software costs and the stress of yet more non-compliance penalties – MTD might not be at the top of your wish list, but at Expandly, we think that MTD is the push that eCommerce businesses need to fully embrace the benefits that technology can bring to their businesses. Benefits include:
1. Fewer accounting mistakes
Digitalising your eCommerce accounting will result in fewer typing errors, miscalculations and oversights – avoiding hefty penalties and giving you a more accurate overview of your sales data.
2. Accounting technology
MTD-enabled software isn’t just there to submit your VAT returns. Cloud accounting software comes with a variety of other features to excel your business, including:
– A financial dashboard – providing you with live data on your financial status
– A mobile app – allowing you to manage your business on the go
– Integration with sales apps – automating manual tasks such as importing invoices and purchase orders.
Xero is a popular choice for online retailers, with added benefits including security, automatic tax calculations, payroll functionality and the ability to import bank transactions. Even better, it makes your accountant’s job simpler and quicker – reducing your fees.
3. Multi-channel management technology
Multi-channel management software not only creates a digital link between your sales channel financials and your MTD-enabled software, but it also provides far-reaching benefits such as:
Being able to manage and review all of your sales channels on one central platform makes multi-channel selling easier, quicker and cheaper for both you and your customers.
4. Management reporting capabilities
Together, accounting and multi-channel management software also give you significant management reporting capabilities, including a live overview of your business and accurate data to make informed business decisions.
Finally, the eCommerce technology required to comply with MTD is also the technology that thousands of other eCommerce businesses are already using to save time on manual tasks and invest more time into growing profitable businesses.
So, instead of cursing the arrival of 2019 and MTD, think of MTD as the sticking force that gets you thinking about how your business is operating, and how much better it could operate by going fully digital.
For more information about Making Tax Digital, visit the government’s website here.
For a free 14-day trial on how multichannel management software can help the process, click here.
For more information on Elver Consultancy’s eCommerce accounting services please click here