Hopefully you have filed your 2017/18 tax return by now (or else you will be looking at a fine). Was it a smooth process or a complete headache that took far too much time? If the latter, then a New (Tax) Year’s resolution could be to ensure you get organised early for this year’s return.
With new rules introduced in April this year as part of the UK’s Making Tax Digital initiative, ensuring your finances are in line, easy to view and understand is essential. The changes being introduced will mean all VAT-registered businesses turning over £85,000 need to submit quarterly tax returns using HM Revenue & Customs (HMRC) compliant software.
The deadline for SMEs and sole traders to manage their tax online is expected to be extended to 2020, yet with so many benefits to gain from managing your finances digitally, small businesses and entrepreneurs can get ahead of the game by beginning their preparations now.
Here are some tips on how to move towards a paperless, and painless, tax return.
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- Four steps to make MTD work for you
Organise your filing
Most people set up a spreadsheet on which to record their monthly income sources and expenses.
This can work fine, if you’re the sort of person who is good at remembering to update records regularly — a spreadsheet like this really needs to be completed monthly to stop it becoming a monster of a job as the tax return deadline looms. The other challenge is keeping track of all the bits of paper needed to prove income and outgoing.
People often use a traditional receipt-spike or simply a drawer or place they consider to be safe and keep their receipts and tax documents in there. Expenses receipts might be print-outs from online purchases, or they might be hidden away and almost forgotten in pockets and wallets, cars and handbags — it’s always worth having a good search and putting them in a safe place.
As an alternative to traditional filing, eliminate the tiresome manual data entry step by digitising all your tax and income documents along with expenses receipts on an ongoing basis.
Instead of putting them in the drawer, simply pop them through a document scanner that saves them directly to a folder to be sent to your accountant at the end of the year, or even uploaded to a cloud-based accountancy software application.
Direct to cloud
The rise in software as a service (SaaS) is seeing many accountancy firms adopt cloud-based applications so it makes sense to get on-board with this inevitable progression.
This is especially important as when Making Tax Digital is fully implemented, we’ll all have to manage our tax and finances through these tools.
Moving to cloud accounting can be straightforward. Packages such as Quickbooks or Sage Business cloud, are easy to use, and the benefits include real time collaboration with accountants and advisors, bank-level security, 24-hour access to your information and real time reconciliation with your bank. The challenge is that document management and organisation will become more important than ever.
The case for cloud accounting
The best way to be organised, maintain accurate records and be able to save them directly to cloud accounting systems is to digitise all your tax documents, invoices, expense receipts, employee records, and other items, instead of relying on a paper-based system. There are some great document scanning solutions on the market today that can scan and store files directly to your selected cloud service. Some software can even recognise data on receipts then automatically extract the relevant information into editable fields for uploading to the cloud. It is also possible to get a scanner that ‘learns’ so that the accuracy of information recognition and extraction, as well as automatic file name suggestions, increases the more scanning you do.
The way UK businesses manage their tax obligations is changing quickly and making sure your small business is organised and positioned for future change is essential. Acting sooner rather than later will ensure you avoid late fees, that you are protected against wasting unnecessary time and that you are fully capable of meeting the requirements of Making Tax Digital.
Jason Rowles, Regional Sales Manager UK & ROI of PFU EMEA
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