When it comes to the making tax digital project, small business owners seem to fall into two groups. One group has a very strong opinion on the matter and the other has never heard of it. Regardless of what group you’re in, it’s going to happen so you need to deal with it.
The Making Tax Digital (MTD) Project
The MTD project involves far more than just moving away from paper tax returns. In essence it’s about making tax and tax declarations a regular event rather than something you do (at the last minute) once a year. Even though it is due to begin in April 2018, there is still a lack of clarity about how exactly it will work and what is going to be involved. What is clear is that small businesses are going to have to provide some form of digital tax filing once a quarter. HMRC has indicated that this will be less than a standard tax return, but how much less remains to be seen. Unlike auto-enrolment which was rolled out from the largest organisations to the smallest, when MTD comes into force, it will apply to all companies.
Keep calm and get ready
Whatever your opinion on the MTD project, it could actually serve a useful purpose in helping to motivate people to keep on top of their tax matters all year round and to have effective processes and systems in place to manage them. Here are some quick points as to issues you may need to address:
Receipt management – if you get a lot of smaller receipts, e.g. for business trips, digitise them as quickly as possible. Take a picture of them with your mobile camera and upload it to the cloud and/or (preferably and) use an app to extract the relevant details and enter them into your accounting software.
Payment management – try to use digital payments whenever possible. If you don’t want to give employees company credit cards, or they don’t want them, consider using prepaid debit cards instead. Just make it clear that receipts still need to be kept for all purchases.
Record management – Even if a spreadsheet (or pen and paper) has been working fine for you up to now, it’s highly advisable to get ready to make the transition to proper accounting software. There are solid and reliable services available for free, although, of course, the chargeable packages typically offer both more features and more support. Using a cloud-based accounting programme will give you maximum flexibility when it comes to managing your accounts, for example it makes it simple for you to work remotely with an accountant.
Start thinking now about managing tax payments
Time and tide wait for no man and neither does HMRC. Tax bills have the potential to cause serious disruption to an organisation’s cash flow. The tax office won’t wait for its money so getting a tax loan could be a very astute move. In addition to making it possible to spread payments over a year, the best providers may even structure your repayments in line with your company’s income stream, to help smooth over seasonal fluctuations.
Consider hiring a bookkeeper and/or an accountant
If you really want to stay on top of your finances, including your tax, then you should definitely think about getting professional help. While there is, of course, a price for this, there is also a huge return on your investment. For small businesses, a good working approach could be to have a VA handle day-to-day financial record keeping, then have a proper bookkeeper go over their records once a month. Once a quarter, or at least, once a year, spend some time with a qualified accountant who has the skills to give meaningful advice on financial management in general and tax management in particular. If your VA and bookkeeper have kept your records in good order, they’ll be able to focus on strategy and hence you’ll get maximum benefit from your time with them.