Is your small business ready for the Make Tax Digital leap? One third of firms still write down expenses and keep receipts in a bag...
- Nine out of 10 small business owners admit they are overwhelmed by regulation
- Comes as HMRC's 'Making Tax Digital' launch on 1 April 2019
- Businesses over the £85k VAT threshold must submit taxes digitally
- However, one-third of SMEs still write down expenses and keep receipts in a bag
- Three quarters of businesses say growth 'stunted' by lack of financial know-how
A large number of British businesses may be panicking over the prospect of Making Tax Digital, a survey suggests.
The move means VAT-registered businesses with taxable turnover above the VAT threshold of £85,000 must use the service to keep records digitally and have compatible software to submit VAT returns from 1 April.
It comes as data suggests that one third of small and medium-sized businesses still write down expenses and keep receipts in a bag.
Confusion: Many SMEs owners aren't financially savvy and admit to being poor at record-keeping
Millions of SMEs lose out on growth in their early years as owners grapple to understand regulation and struggle to keep adequate financial records, according to analysis by software app Xero.
It found that nearly 90 per cent - or 4.9million - of small business owners admit feeling 'overwhelmed' by regulation when starting up.
Xero also found two thirds of small firms admitted to having less than one day's corporate financial experience or business education prior to the launch of their business.
Gary Turner, co-founder of Xero, said: 'Small business owners feel overwhelmed by paperwork and rules they don't have time to get to grips with.
'Many may see Make Tax Digital as another thorn in their side, but our research also shows that once business owners get on top of their finances, these businesses often prosper more quickly.'
Research from Xero shows that more than three quarters of small business owners had never submitted a tax return before starting up.
Furthermore, two thirds admit they've been hit with tax return fines - with the most common fine being between £300 and £400.
Xero says 50,000 SMEs fail each year due to cash flow issues.
Sarah Willingham, former 'dragon' on BBC television show Dragon's Den and entrepreneur said: 'We're in a period of unknown, and that can leave many of our nation's small businesses feeling confused about the state of play.
'Combine that with new legislation – like HMRC's Make Tax Digital coming in April – and you create an overwhelming environment.
'We definitely can't risk hampering the growth of this scene, so it's up to the business community to rally together to ensure that small businesses are educated – after all, legislation is not there to kneecap business, it is there to fuel growth.'
Sarah Willingham, BBC Dragon and entrepreneur says that regulation is not there to knee cap businesses but to fuel growth
The most common way of managing finances for UK SME owners is to manually write down expenses in a notepad and keep receipts in a bag, with one in three saying they do this.
But non-digital forms of data capture can lead to mistakes. The most common include submitting the wrong amount of taxable income, with nearly half having done this, losing paperwork (22 per cent) and incorrect expenses calculations (17 per cent).
According to more than a quarter of SMEs, digitisation has saved them time.
Meanwhile, 22 per cent say it has saved them money and has encouraged entrepreneurism, helping trigger future start-ups.
Xero has been listed by the HMRC as compatible with Make Tax Digital for VAT.
You can check which software packages are compatible with the initiative here.
The business will soon roll out the functionality but it has in the meantime launched a cartoon series, created by the Oscar-nominated artistic duo Alison Snowden and David Fine, which shows accountants and businesses how to switch to digital forms of record-keeping.
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