Making Tax Digital (MTD) is set to roll out in the UK sometime in the next few years, but a recent study from the UK200Group found that 65% of their members aren’t ready for it.
While the UK small business world has made great strides in the past few years in terms of digitising business practices, it’s still lagging behind in certain areas, including digital financial management … and it could start causing some serious issues once MTD comes into play.
According to the UK200Group’s survey, only 35% of businesses use accounting software to keep up with their business finances. A further 27% use their computers in some way for their accounting — for instance, they might use Excel spreadsheets to keep track of things — but would still have to update their systems before they could participate in MTD.
But they were still ahead of the 23% who still use manual bookkeeping, not to mention the 16% who use what’s affectionately called the shoebox method: dump it all in a box and give it to you at the end of each year.
This will have to change for MTD…
MTD is designed to make the whole tax process easier for accountants and small businesses. Rather than having to go through the annual pain of sorting through all your clients’ paperwork and filing a tax return (not to mention the uncertainty of having to guess at what you’ll have to pay throughout the year), MTD is intended to create a streamlined process.
Small business owners will use a digital interface to report information about their finances to HMRC throughout the year, updating the government quarterly, rather than annually, about their business’s financial standing. Since everything is to be done digitally, your clients will need to begin using up to date software for their accounting.
… but really, it’s just good business practice.
MTD aside, it’s really much better for small businesses to run on a digital accounting programme. Not only does it make things easier for them by allowing them to easily keep records of their income and expenses, it also makes things much easier for you. By being able to readily access information about their business’s finances, you can give them better advice about development, not to mention tips about hiring, expanding, or seeking investment.
Since it’s going to have to happen sooner or later, why not start now? Here are our best tips for supporting every type of small business owner.
If they’re already using a digital accounting programme:
They should be good to go! Just keep an eye on how things develop with MTD to make sure the software will be compatible with the final version of their interface. (Keep up to date with MTD here.)
If they’re using Excel sheets or something similar:
They’re already pretty well set up for the changes ahead, but do need to start getting their accounting shifted over to digital accounting software — and that’s just what the first step is. You may be able to help them out, but it’s actually much easier than they might expect to get started with most programmes.
Since they’re already fairly organised, it should be pretty simple for you to transfer the good bookkeeping habits that they already have, like tracking and categorising expenses, to a software setting. Plus, your clients might be surprised to see just how much of their accounting you can automate with software. Things like running balance sheets, getting quarterly overviews of their financial standing, and even managing things like CIS returns can all be done with much less effort on your end.
If they’re totally new to digital accounting:
Don’t worry, it’s easy to get started! Chances are that a lot of the things they’re already doing will transfer over well into a simple accounting software platform.
The first step is to find an accounting software that they are willing to try out. Most offer a free trial, so you can find the software that really works for them and their businesses.
If they’re a shoebox person:
Then they’ve got a change to make — but their business will be better for it! And we suspect that your clients will come to like the new way of doing things better. If nothing else, they won’t have to worry about getting stuck with an unexpectedly large tax bill, which is quite a load off most people’s minds.
The first step is to start thinking about what you want the accounting software to do for them, so you can then find a programme that suits your clients’ businesses. Some questions to ask include:
— Are they going to be taking care of most of the accounting themselves, or do they want software that you can sign into as well?
— Do they operate in one currency, or need software that can handle multiple currencies?
— Do they want the software to automatically remind them when their invoices are overdue?
— What about payroll? Do your clients need software to be able to handle that?
— Do they have industry-specific accounting needs? For instance, are they in construction, and need accounting software to be able to handle subcontractors?
MTD is coming up, and you really don’t want to be caught short. So start getting ready for this important shift now. Not sure where to start? We’re here to help, see what simple accounting software can do for you and your clients.
