How to survive and thrive amid Making Tax Digital
Read time : 5 min Added: 06/01/2023
In April 2022, HMRC introduced new tax legislation requirements Making Tax Digital which requires all VAT-registered businesses regardless of turnover to report digital VAT records. HMRC says that while “the majority of customers want to get their tax right” the latest tax gap figures show that many are finding this hard.
However, if you are a small business owner already coping with soaring energy costs, supply chain issues, post Brexit complications and rising inflation rates, meeting the new regulations may potentially add to those pressures.
According to research carried out with small business owners by Mental Health UK in January 2021, more than eight out of ten (83%) carry out multiple job roles and two-thirds say they work long hours. Over 50% reported being regularly concerned about the future of their business.
Indeed, 54% of small business owners experience stress several times a month, according to Mental Health UK. Two-fifths say they are exhausted, and more than a third are anxious and suffer disrupted sleep or insomnia several times a month or more.
You might feel that the Making Tax Digital requirements only add to this stress. And if you’re not particularly tech savvy, the thought of switching to digital can be overwhelming.
Certainly, it’s a considerable step change. It’s known that some small business owners may be using their personal accounts to manage their business finances. Whilst this may be convenient, it’s best practice regardless of business type to operate a separate business bank account. If you have a Limited Company, the finances of the business must be kept separate from your personal accounts, and a business account will be required to work with digital accountancy software.
Support is at hand
The challenges you face as a small business owner are vast, but not insurmountable. When it comes to complying with Making Tax Digital, small business accounting software is a low-budget strategy providing long-term organisational tools that help to keep your business HMRC compliant and help avoid costly mistakes.
And, as one small business owner shared, failure to comply with HMRC’s rules can certainly be costly: “I didn't really know what I was doing. I submitted the declaration online, listing only expenses with zero income. I got a call from HMRC saying that I was under investigation for the next three years.”
A growing number of solutions are available to help you manage the many challenges of the new tax protocol. Lloyds Bank business customers with a business account can register for Business Finance Assistant (BFA) which allows them to manage their bookkeeping digitally, save time through automation tools and generally help them to manage their business finances more easily.
Switching to custom-made accounting software alleviates the onus on business owners to understand the complexities of the new legislation. When it is time to file your VAT return, Making Tax Digital software will have already calculated what your business owes. And by connecting straight to HMRC, you can easily check and monitor your tax records before submission.
If you are worried about the stress of learning a new system, BFA provides FAQs, videos, and 1-2-1 assistance from a technical support team. Moving to digital can also be cost effective. BFA, for example, allows users to try the software for free for the first three months with no obligation. Once the three months is up, customers can sign up for a monthly £5 fee or cancel at any time at no cost.
By having everything visible and under control in one place, you will have more time to focus on the more value-add aspects of your operation.
Once registered, you can access the BFA platform on any device, either directly or by way of a link on your existing Lloyds Bank Internet Banking homepage. The system offers seamless interaction with internet banking, with a summary panel giving you a high-level overview of your monthly incomings and outgoings, as well as displaying reminders for accounting activities.
Software such as Business Finance Assistant provides a centralised view of all your accounts, including those from other bank providers if you consent to share via open banking. By letting you invite your accountant or other people in the business to use the software, without incurring additional charges, systems like BFA create a secure but collaborative approach, enabling you to delegate actions to the right people while still having ultimate oversight on the progression of tasks.
Managing cash flow
One of those tasks is managing cash flow and yet, according to Mental Health UK 80% of business owners are worried about it, with 15% saying they are “extremely worried.” This is made worse for those who say they are unable to get help.
The software’s cash flow forecasting facility makes it easy to understand your business’ financial position so you can make better decisions. Within BFA, this is fully adjustable which allows forecasts to become increasingly more accurate over time.
Small business owners know the importance of a flexible easy-to-use invoicing system but not everyone has access to one. Business Finance Assistant can make it easy to create fully customisable invoices and quotes, and has helpful automated triggers which alert users to overdue invoices. The system will then send a chaser once actioned by the user.
Once the invoice is paid, the transaction is instantly reconciled, so you can get on with running your business. It is also easy to process expenses. This ends the reliance on recording information by hand or through cumbersome spreadsheets. Instead, you can upload a PDF or photo which will be automatically recognised and saved.
The way ahead
As a small business owner, there are many obstacles you need to overcome and much of the future looks uncertain, but meeting your year-end reporting deadlines and submitting accurate information to HMRC is important.
Moving to effective accountancy software can go a long way to ease the stress you face by offering a cost-effective, reliable way to manage your tax affairs and enhance your business’ efficiency.