Making tax digital with document scanners: An introduction
For small businesses and accounting departments, the time-honoured way of dealing with tax is going to shift dramatically. With over thirty years experience helping businesses of all sizes upgrade, update and implement tech software and solutions, today we’re going to lend our expertise to explain exactly what Making Tax Digital means, and explore how document scanners can play a pivotal role in its successful implementation.
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is an initiative proposed by the government to move the UK tax system away from the traditional paper-based tax-record keeping to a modern digital-first platform. It requires both businesses and individuals to keep digital records of their income and expenses, and to submit these records to HMRC on a quarterly basis.
The initiative was first introduced in 2015 and has been rolled out in a phased approach. The first phase, MTD for VAT, was introduced in April 2019. This required all VAT-registered businesses with a taxable turnover of over £85,000 to keep digital records and submit their VAT returns to HMRC using compatible software.
The second phase, MTD for Income Tax, is due to be introduced in April 2024. This will require all self-employed individuals and landlords with an annual income of over £10,000 to also keep digital records and submit quarterly updates of their income and expenses to HMRC.
What are the benefits of MTD?
The main objective of MTD is to simplify the tax process for individuals and businesses; improving accuracy and efficiency as well as integrating with other business processes and tasks.
Improved accuracy; less costly mistakes
Last year, HMRC issued over 18,000 penalties to taxpayers over “careless” mistakes made on tax returns. By moving to digital records, the potential for the manual errors associated with paper record keeping can be drastically reduced. Accurate records ensure that tax calculations are more frequently correct not only minimising the risk of costly mistakes and fines but also reducing the administrative burden on HMRC, too.
Streamlined processes; less time wasted
Along with improving the accuracy of records, MTD is also designed to help businesses and individuals streamline their current tax processes; saving time, too! Using software to track sales and expenses, income and deductions, helps to identify trends, make better financial decisions and file taxes much more easily. Going digital-first isn’t just about meeting regulatory requirements, it’s about making life easier for businesses, business-owners, and individuals.
Getting started with MTD; Implementing document scanners
As we progress toward the digital-first tax landscape, one item in particular has started to emerge as an indispensable tool; the document scanner. These devices take your physical documents and turn them into digital formats that can be automatically uploaded to your management systems and software. Let’s explore how you can use this technology as part of your digital transformation.
Step one: The right scanner for your business needs
In order to select the right scanner, you first need to consider your business needs. The three key considerations are:
Scanning speed; how big is your business and how many documents will you need to scan? The speed of your scanner can have a huge impact on how quickly you’re able to complete your digitisation. For those looking for speed from their scanner, you can’t go wrong with customer favourite the WorkForce DS-790WN. This high speed network scanner can scan both sides of a document at once up to 45 pages per minute (ppm) at a rate of 90 impressions per minute (ipm) with the 100-sheet automatic document feeder (ADF). In total, this scanner can handle around 7000 pages per day duty cycle, making it perfect for larger businesses who have a high turnover of documents.
Document size; how often do you find your business handling large format documents? If you are regularly dealing with oversize documentation then it’s worthwhile investing in a scanner that can comfortably handle this.
Integration capabilities; what existing accounting software are you using? Look for scanners that offer integration with your software systems for a seamless implementation. The DS-C490 is an incredibly popular choice as it effortlessly integrates with Microsoft applications including Word, Excel, PowerPoint. It’s also compatible with Windows, Mac, and Chromebook, so the number of new systems you, or your accounting team, need to familiarise yourself with is minimal!
Step two: think about your data security needs
When you’re dealing with sensitive financial information, having confidence in the security of your devices is crucial. Many scanners are equipped with the capabilities to encrypt documents and implement access control (as the DS-790WN is). It’s also important to carry out regular back-ups in order to safeguard your digital records. You should always check that your scanner has the security features needed for your business.
Step three: organising your document categories
Before you get stuck into scanning, it’s worth taking the time to plan your strategy for categorising your documents. Creating a logical system that mirrors your tax requirements, and sharing this plan with your key stakeholders, will make the retrieval and reporting more efficient and easier to manage both when you first get started, and when it’s time to submit your tax information. As you scan and digitise your documents, you should also ensure proper indexing. Indexing involves tagging documents with relevant keywords, dates, and categories to help with document retrieval when it’s needed.
Step four: integrate your scanner with your software
To really make the most of MTD, integrating your document scanner with your compatible tax software is the vital step. This is crucial to maximising the benefits of digital-first tax as it allows you to automate the process of data entry; keeping on top of your deadlines, improving compliance and dramatically reducing the risk of errors!
MTD: Getting prepared for the future
Embracing document scanners is a key part of the transition to digital tax. Embracing document scanners as your trusted allies in this journey ensures that you're not just keeping up with the times, but leading the way.
Remember, the future of taxation is digital, and document scanners are your passport to this future. To discuss your scanning needs, why not book in a free consultation with one of our experts.