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- 23 Apr 2024
Why you should keep digital records
- 05 Jan 2022
Keeping digital records is a core aspect of Making Tax Digital (MTD) - the biggest overhaul of the tax system in a generation. From now on you will need to keep your records in a digital format, stored on a computer or in the cloud.
MTD’s process means businesses will no longer be able to use things like a ledger book or duplicate pad as their primary source of data storage. Likewise, a till that physically prints out a till report at the end of the day but doesn’t store that information anywhere will need to be replaced with something that does.
If you produce handwritten invoices or receipts, then you will have to transfer the accounting information to your MTD-compliant software before you submit your VAT Return (or get your accountant to do it for you!). This can be quite a headache and take up a lot of your valuable time, so you need to know what is required of you to make sure that you're covering your bases.
Keeping digital records doesn’t mean you don’t have to keep original paperwork. Quite the opposite, in fact. Original paperwork still needs to be stored as it could be required by HMRC in the event of a tax or VAT investigation. For most businesses, it means keeping paperwork for at least six years, though for many it is a minimum of 10 years. HMRC will accept digital copies of receipts and invoices, so you could scan documents and store them to save on storage space in the office.
Getting ready for keeping digital records and MTD
Businesses can either submit information through their accountants or independently by using HMRC-approved accounting software.
If you wish to submit information independently using accounting software, be mindful that the software you use should remove most of the admin burden by default. Remember, if you are transferring data from paperwork into software, you must keep the original documents in case they are required by HMRC at a later date.
If you don’t feel it is removing the admin burden, you should consider switching to a different software provider or using an accountancy service.
What is the definition of a digital record?
A digital record is information that has been created, stored, or transmitted in a form that can be read by a computer. The key word here is ‘read’ – it doesn’t matter how the data was inputted into the system, as long as it can be accessed and processed by a computer.
This could include scanned receipts and invoices which have been saved onto your computer or mobile device, records of bank transactions that have been downloaded into an accounting software package, or even an email to your accountant with details of your income and expenses for the year.
HMRC are clear that there is no definitive list of acceptable software products, so you need to make sure that the product or accountant you are using is compliant with the new MTD rules.
Take care to be compliant
Be very careful if you rely on something other than approved software or an accountant. In our experience, many businesses still use Microsoft Office software for their VAT accounting work. Although it is possible to be compliant this way, it comes with big risks.
To be compliant with Making Tax Digital, you must ensure that the data those files contain is not only kept for the required statutory period but that it is stored without any risk of loss or corruption. The risk of Excel spreadsheet formulas or Word documents becoming corrupted, overwritten, or deleted entirely is relatively high. Therefore, we would not recommend using Microsoft Office software (or similar) to keep digital records.
Next steps
Take a look at your current systems and see if you think they will comply with the new regulations. If not, spend some time researching what would be the best solution for you. Is it a piece of software that you use yourself? Or perhaps outsourcing it to an accountant would be the best bet for you?
If many of your records are not digital, be sure to systemize your paperwork to make compliance with MTD easier.
Overall, we strongly recommend putting any changes in place now - before it becomes mandatory! Better to get ahead of the curve and have time to adjust than have to scramble to find a solution at the last minute.
And if you're really stuck, visit us at www.mazumamoney.co.uk or give us a call on 02921 051 962 and we'll be able to help.
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