--- description: Learn about Making Tax Digital and what you need to do to make sure you have everything in place before the deadline. image: https://gdm-localsites-assets-gfprod.imgix.net/images/capterra/og_logo-e5a8c001ed0bd1bb922639230fcea71a.png?auto=format%2Cenhance%2Ccompress title: Making Tax Digital: How to get your business ready --- # Making Tax Digital: How to get your business ready Canonical: https://www.capterra.co.uk/blog/1298/making-tax-digital-how-to-get-your-business-ready Published on 11/02/2020 | Written by Sonia Navarrete. ![Making Tax Digital: How to get your business ready](https://images.ctfassets.net/63bmaubptoky/HjxK-65ppPPqUtKsu-EoNID_iZ_7FIuSWK_7M0dKvZE/8992b41de8ced72a65c3a8125d84c1d0/Making-Tax-Digital_final-advice_Feb20.png) > The UK government wants to build “one of the most digitally advanced tax administrations in the world.” But what does this mean for your small business? ----- ## Article Content The UK government wants to build “one of the most digitally advanced tax administrations in the world.” But what does this mean for your small business?What is Making Tax Digital?Anybody who’s had to fill out a tax return – whether for themselves or a business – knows how time-consuming, stressful, and confusing the process can be. That’s why the accountancy services industry exists – to help navigate the complexities of paying tax correctly and on time.But steps are in place to make the whole process more efficient, more effective, and less prone to error. This, says the government, will be good news for taxpayers, accountants and HMRC alike. Preventable mistakes cost the Exchequer £9.9 billion alone each year.In a nutshell, Making Tax Digital (MTD) requires businesses to keep digital financial records and complete tax returns using software. VAT has been digital since April 2019, and HMRC is encouraging taxpaying entities to use MTD for other taxes, too. However, the government has announced that it will not mandate MTD for new businesses or taxes in 2020.How ready are businesses?Last year, we surveyed over 400 self-employed people and small businesses (with under 250 employees) from a range of industries about how they are preparing for MTD.Back in September, 55% of respondents said they didn’t feel confident about their understanding of the scheme. The main difficulties they encountered were lack of information (31%), the cost of finding a new software or upgrading the current one (15%) and finding a compliant software (13%).The use of software for account-keeping was fairly high across respondents. 42% use dedicated accounting software, 47% use a spreadsheet like Google Sheets or Microsoft Excel, and 11% still keep records on paper.MTD is all about software – but where to start?For small businesses with simple accounting needs, a spreadsheet makes sense. But as your business grows, the limitations soon become clear. As more people need access to a file, ensuring consistency (and regulatory compliance) becomes hard to manage. As you need to move data between sheets and systems, the manual work involved in copying and pasting – not to mention the likelihood of introducing errors – soon adds up.Spreadsheets can be used to submit tax returns under MTD, but doing so is far from easy. In fact, the desire to continue to use spreadsheets has led software companies to develop “bridging” products, which convert data in spreadsheets into an MTD-readable format.Using accounting software to keep accounts and submit tax returns is a good idea. It keeps your financial data in one place and can help with data security. The right people have visibility into cash flow, invoicing, payroll, and other information in real-time. Software can also help your business save time in bookkeeping, auditing and managing tax.What do I need to do now?The first step is to understand if MTD applies to your business. As things stand, only companies whose turnover exceeds £85,000 must use the system, and only for VAT. This has been the case since April 2019. You can find out more about MTD for VAT on the GOV.UK website .To prepare for the wider application of MTD, sole traders and landlords can sign up to the pilot scheme for income tax. This will require you to use approved accounting software and submit information about your income and expenses to HMRC each quarter. Again, full details again are on GOV.UK.If neither of the above applies to your business, it is still a good idea to prepare for MTD. Consider how you currently record financial information. If you use software, is this compatible with MTD? If you use spreadsheets, explore bridging software and look at the advantages and disadvantages. You may be better off migrating to dedicated accounting software. If you use pen-and-paper bookkeeping, there’s no better time to look at digitising your processes.In another blog post, we explored six popular accounting software packages, all of which are reviewed and rated by small businesses like yours and available on our website. ## About the author ### Sonia Navarrete Sonia is a Senior Content Analyst at Capterra, helping SMEs choose the best software. She published in Raconteur, Computer Weekly and IT Pro. 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