In case you weren’t aware (and if you are self-employed then you really should be), Making Tax Digital is coming. You can tell by the number of articles in the press by self-employed journalists whose yowls could be heard for miles around. For example, under the heading, “This is final proof that HMRC hates the self-employed” the Sunday Telegraph’s Janet Daley wrote:
“With a refreshed vengeance, the diabolical Making Tax Digital (MTD) system, which has already been inflicted on any business or self-employed person with earnings over the Vat threshold of £85,000 will, from 2022, be extended downwards to anyone who is Vat registered however little they earn.
“Complying with MTD requires specialised software, considerable training time to understand it, and further time to use it in the ordinary course of business. For firms large enough to employ dedicated finance officers this is relatively manageable. For small businesses or (heaven help them) solitary individuals, it is an expensive incomprehensible nightmare which will almost certainly require the (paid for) assistance of an accountant. And just to make sure nobody trying to earn a living by his own talents is left out, the MTD monster will be unleashed a year later on income tax for all self-employed people earning more than £10,000 who now file self-assessment tax forms.”
My translation of this is that Mrs Daley is probably a technophobe who clearly doesn’t understand what’s going on here and would rather bury her head in the sand and hope this all goes away. I simply don’t recognise what she’s writing, and here’s why…
At the request of M&S, I took part in the pilot for MTD, back in 2017. My contact at HMRC was extremely helpful and if he had a hidden agenda he was very good at hiding it. I was then and am now well aware of the arguments against MTD, but I’m also, as a result of being involved in the trial, probably better informed than the likes of Mrs Daley.
Using cloud accounting software is, unless you really are a technophobe – in which case you are going to struggle in virtually any area of business in the future - straightforward. OK, that’s perhaps being a bit too kind, but it’s not hard and, in my experience, having used two of the major suppliers, XERO and FreeAgent, there is lots of help. FreeAgent in particular I find extremely good, with much better customer service than XERO, but you pays your money and you makes your own choice. Yes, these cost money, but it’s not horrific and if you really don’t want to use a paid-for supplier, HMRC is going to provide software that is free-to-use. Given that HMRC was one of the few parts of government to get its tech in order in time during the pandemic (furlough, loans, etc.), I’d have more confidence they’ll get this right than if it were being handled, dare I say it, by the NHS (whose track record with tech is frequently appalling).
The key, as with all technology, is NOT to give up the moment you don’t understand something. Google your problem and there is invariably a YouTube video or blog somewhere that will explain what to do. In the same way that you have built up whatever skills underpin your business, whether it’s plumbing or pastry-making, you need to take some time to learn how to use this stuff. And once you do understand it, life becomes FAR easier. If you have previously only done VAT returns on a wing and a prayer, all of a sudden you just need to press a few buttons.
The other advice I’d offer is to make sure you keep everything up to date. Depending on your business, file your expenses and income weekly or monthly; don’t let it pile up until the end of the year. If you’re on top of everything then the software is a massive aid to your business planning, not an encumbrance.
As regards whether you need an accountant or not, I choose to use M&S (others are available) because I, a) like them and b) find them very professional (they have saved me money, always a good thing). However, should you choose not to use an accountant, then it’s far easier to have everything in one place online than to have shoe-boxes full of receipts. The latter makes any investigation by HMRC a nightmare: the former doesn’t exclude the possibility of it being a nightmare but does make it much easier to show where and when everything happened.
A study by the Federation of Small Businesses earlier in the Covid crisis suggested that over 60% of small firms have not put aside enough money to cover their tax bills. Sorry, but that’s just a fundamental part of running a business: not budgeting properly is a guarantee of hard times, if not outright failure. However, the great advantage of online accounting is that you have everything in one place and the software does all the sums for you: all you have to do is make sure you input the information correctly. Knowing your cash flow, being able to send out electronic invoices and automatic payment reminders, checking your expenditure in a second as opposed to searching through those shoeboxes – these and many other aspects of online accounting make life easier, not more difficult. Contrary to Mrs Daley’s view, it actually SAVES me time and makes me more productive. At a time when so many businesses are struggling, it is extremely useful to know where and when you have to pay your tax. Even the idea of paying quarterly, which I previously railed against, now seems more attractive and, obviously, it’s easier to plan for quarters than for a whole financial year (do you know where your business will be in a year’s time?).
At the end of the day, this is coming, whether we like it or not. You can wail as much as Mrs Daley, but you’re going to have to get used to it. Be assured, it’s not massively expensive, especially for a sole trader and it DOES make your life easier once you’ve got your head around it.
Alastair Blair, thePotentMix