Making Tax Digital (MTD) is a government initiative that aims to make the tax system more efficient and effective for businesses in the UK. It requires businesses to keep digital records and submit their tax returns online, making the process faster, more accurate, and less prone to errors. While MTD has been in place for larger businesses since 2019, it will now extend to small businesses with turnovers of less than £85,000 by April 2022. This means that small businesses and SMEs need to start preparing for the transition to MTD to ensure compliance and avoid penalties. Here are five steps that small businesses can take to comply with MTD and make the transition smoother.

Step 1: Understand the requirements of MTD
The first step to complying with MTD is to understand what it entails. As mentioned earlier, MTD requires businesses to keep digital records and submit their tax returns online. This means that businesses will need to use compatible accounting software to keep track of their income and expenses and submit their VAT returns through HMRC’s online portal. It is essential to familiarize yourself with the MTD requirements and make sure that your business is ready to make the switch.

Step 2: Choose the right accounting software
To comply with MTD, businesses need to use compatible accounting software that can keep digital records and submit VAT returns online. There are various options available in the market, and it is crucial to choose the one that best suits your business needs. Look for software that is user-friendly, affordable, and offers features that will make your accounting processes more efficient. It is also advisable to choose software that is HMRC-approved to ensure compliance with MTD.

Step 3: Get your records in order
As MTD requires businesses to keep digital records, it is essential to get your records in order before the transition. This includes all your financial transactions, such as sales, purchases, expenses, and VAT. Make sure that all your records are accurate and up-to-date, as this will make the transition to MTD smoother. It is also advisable to keep backups of your records in case of any technical issues or data loss.

Step 4: Train your staff
It is crucial to involve your staff in the transition to MTD and provide them with the necessary training. This will ensure that everyone is familiar with the new accounting software and understands their roles and responsibilities in the MTD process. It is also essential to keep your staff updated on any changes or updates to the MTD requirements to ensure compliance.

Step 5: Seek professional help
If you are unsure about how to comply with MTD or need assistance with the transition, it is advisable to seek professional help. There are many accountants and tax advisors who specialize in MTD and can guide you through the process. They can also help you choose the right accounting software and ensure that your records are in order. Seeking professional help can save you time and effort and ensure that your business is compliant with MTD.

In conclusion, MTD is a significant change for small businesses and SMEs in the UK. However, by following these five steps, you can make the transition smoother and ensure compliance with the new requirements. It is essential to start preparing for MTD now to avoid any last-minute rush and penalties. Remember, MTD is not just about complying with the law; it can also bring many benefits to your business, such as increased efficiency, accuracy, and reduced costs. So embrace the change and make the most out of Making Tax Digital for your small business.