Small and medium-sized enterprises (SMEs) account for the majority of the business population in the UK, producing trillions of pounds in revenue every year. However, a large amount of their time is spent working on financial admin.
According to a recent study, 32 per cent of micro business owners are concerned about the hours they are spending on the time-consuming task of bookkeeping and accounting.
One common cause for concern amongst all businesses – a large number of microbusinesses included – is HM Revenue & Customs’ (HMRC) Making Tax Digital (MTD) for VAT legislation.
All VAT-registered businesses with VAT-able sales above £85,000 (current annual threshold) are required by law to keep digital records and file digital returns through software that is compatible with MTD on a quarterly basis.
The worries are that these changes to VAT reporting risk the chances of microbusinesses receiving penalties for errors or late submissions.
Whilst these changes might seem daunting, it is important to focus on the long-term benefits of MTD:
- Registering for MTD with HMRC means you will soon be completely compliant with the tax filing obligations
- VAT returns can be filed a lot more efficiently and quickly
- Having all your accounts up to date in accounting software will provide clear visibility of how your business should be performing
- Enables you to make well-informed decisions in the future
- MTD is the first step towards full digitalisation of tax in the UK
- The Government plans to widen the legislation to other business taxes such as income tax and National Insurance (these next steps are important to keep your eye on – to be prepared for the change)
A recent report from Accountancy Daily stated that:
- One in five micro businesses stated that being able to see and access all of their finances could be the answer to saving time in this department.
- One in six can identify the benefits of having an accounting system that is integrated with their bank account.
- Ensure you register for MTD with HMRC – it is not done automatically
- Find MTD-compatible software
- Despite the leniency towards late filings – whilst businesses get familiar with the new system – do not get comfortable
- Remember that the VAT bill deadline remains the same once your digital VAT return is filed, as do the consequences
If you are struggling with MTD for VAT or would like to know more about our accounting services, please contact our expert team today.