FREQUENTLY ASKED BUSINESS QUESTION
I have a small business and am wondering what my New Year’s business resolution should be?
If you have a small business with a turnover of less than £85,000 then your New Year’s business resolution should definitely be to get your business records digital unless you have already done so.
What is Making Tax Digital?
Making Tax Digital (MTD) for VAT was first introduced back in April 2019 and it resulted in businesses having to keep digital records and using accounting software which was Application Programming Interface (API) compliant with HMRC’s platform. Currently, most VAT registered businesses with turnover exceeding £85,000 are compliant with the MTD regime and this regime is to be extended for all other VAT registered business from April 2022. This means that if you have a small VAT registered business with a turnover of less than £85,000, you will have to get MTD ready and registered. MTD for VAT is part of a larger project whereby HMRC will eventually have all businesses submitting quarterly digital returns of turnover, expenses and profits with the next major milestone being the introduction of MTD for income tax self-assessment. This was due to start in April 2023 but has been put back by one year due to the Covid 19 Pandemic.
How can you Make Tax Digital?
The good news for you is that since Making Tax Digital was first mentioned many years ago, a plethora of software providers have entered the small accounting and book-keeping space meaning that you can sign up for a digital accounting package such as Xero, Quickbooks, Sage at a relatively modest cost.
Why should you Make Tax Digital?
Although these packages will enable you to be MTD compliant, you should look beyond the tax compliance features of these packages and realise that they will actually greatly enhance your ability to understand and keep track of your business as the functionality of these software packages has broadened out into areas such as the automatic chasing of debts due to you and the ability to scan receipts into the software which are then automatically populated into your business accounts. HMRC research shows that a quarter of those businesses with a turnover of less than £85,000 have already voluntarily joined the MTD system which indicates that these business owners see the requirement to keep up to date and accurate business records as an opportunity rather than viewing it as yet another statutory obligation with which they have to comply with.
There are approximately 4.2m tax payers with business and/or property income exceeding £10,000 such as landlords, sole traders and partnerships to whom this MTD regime will be extended to in April 2022. Research undertaken by Lloyds Bank in 2019 showed that the digitisation of small businesses saved on average one day per week in administration tasks which are often undertaken at night by the business owner after a long day of work. Given the amount of compelling evidence to show that digitisation of business records not only makes one more compliant but greatly improves efficiency and productivity there is no doubt your 2022 New Year resolution for your business should be to digitise it.
Here to Help
The team at FPM are here to help with all your finance and tax queries. If you would like more assistance on your journey to digitalisation, contact our Digital Solutions Team.