Doing Your Finances Digitally | Living North

Making Tax Digital

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As of 1st April, all VAT-registered businesses turning over £85,000 a year or more have to submit their VAT returns digitally. We speak to Chris Bailey of Bailey Group Chartered Accountants to find out more about what this change will mean
‘But if you think of your average small, North East business, how many of them are also accountants on the side?’

In an increasingly digitalised world, HMRC has implemented the Making Tax Digital programme, meaning most businesses over the VAT threshold will now have to keep their records digitally and submit their VAT return using compatible book-keeping software. According to Mel Stride MP, Financial Secretary to the Treasury, ‘Delivering Making Tax Digital for VAT is the first step toward our ambition to create one of the most digitally advanced tax authorities in the world.’

The programme was developed with the aim of ‘giving businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs,’ but how will small businesses cope with the changes? Accountant Chris Bailey of Bailey Group explains a little more.

‘Essentially up until now, if you’re VAT-registered, all you had to do (in the simplest terms) is fill in a form on HMRC’s website and that’s your VAT return done,’ Chris explains. ‘You just filled the form in and then they collected the VAT by direct debit – you didn’t need a book-keeping package, you could do it in a book. As long as you could show them how you got the figures if they came and asked, that was fine.

‘As of 1st of April, the whole world changed. What happens now is that businesses have to record their transactions digitally. HMRC has now closed what was their gateway, so you can no longer just go on there and enter the figures into their system – you have to send a digital record of your transactions to them.’

But what exactly does a digital record entail? ‘You can’t record it on an Excel spreadsheet; you can’t write it down in a book; you have to use a compatible book-keeping package that records things digitally. Most of these cost around £25–£30 a month, and these costs will soon add up for small businesses,’ says Chris. ‘This change won’t affect big businesses, because they’re using this software already,’ Chris explains. ‘But if you think of your average small, North East business, how many of them are also accountants on the side?’

This means that every quarter, when VAT returns are due, the small business-owner will either have to do their returns themselves, and risk a fine if it’s filed incorrectly, or pay a visit to their accountant four more times a year.

‘Obviously I am an accountant, and now I’m faced with four times the amount of work. Do you think the average fish and chip shop owner, for example, can afford four times as many accountancy bills? Of course not. We do however have a solution that’s going to keep costs down for small businesses.

‘We’re launching what we’re calling the “Scan Van”. Inside these vans will be a scanner, a printer and computer, and we will physically go to a business, scan all their records, invoices and whatever else they have, and that will then automatically be uploaded into our accounting system and be sent off to HMRC,’ says Chris. ‘We’ll take the pain out of it for them.’

And come 2020, businesses of all sizes will have to go digital. ‘There’s going to be a de minimis limit for income of about £10,000 a year,’ says Chris. ‘So if you rent out three houses, you’re going to be affected.’

If Chris had to give one piece of advice to small business owners, it’s knowing exactly where you stand so that no mistakes are made. ‘Ask yourself the simple question of “am I VAT-registered and do I do my books on a book-keeping system that is compliant?”,’ he says. ‘If you use one of the big systems like Sage or Xero you’re probably already compliant, but if not then you won’t be. And then you need to ask yourself if you’re confident in your own record-keeping, because if not and you send the wrong return in, there will be a fine.’

Although HMRC have stated that they will take a ‘light touch approach’ to penalties for incorrect records while businesses get to grips with the new system, it’s clear that this is a massive change for business owners. If you need any help with Making Tax Digital,

visit www.baileygroup.co.uk

 

Published in: July 2019

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