With one month to go before the government’s new VAT rules come into force, almost nine out of 10 (approx. 4.9m) small business owners admit feeling “overwhelmed” by regulation when starting up. According to analysis from small business software app Xero, three-quarters of UK businesses (approx. 4.2m) said that early growth was “stunted” from the sheer amount of time and expense it took to become financially business literate.
The research found that two-thirds (63 per cent) of small firms admitted to having less than one day’s corporate financial experience or business education prior to the launch of their business.
Furthermore, more than three quarters (78 per cent) of small business owners had never submitted a tax return before starting up, with two thirds (66 per cent) admitting they’d been hit with tax return fines, with the most common fine being between £300 and £400. The repercussions can be even more severe; according to Xero, 50,000 small businesses fail each year due to cash flow issues.
What is clear, however, is that you can’t ignore Making Tax Digital (MTD). The sooner your business assesses its current systems, how they need to change and what services could offer a workable solution, the better prepared your enterprise will be.
Gary Turner, co-founder and MD, Xero said, “Small business owners feel overwhelmed by paperwork and rules they don’t have time to get to grips with. Many may see Making 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.”
Sarah Willingham, BBC Dragon and entrepreneur said, “We are 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 Making 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.”
The most common way of managing finances for UK SMB owners (32 per cent) is to manually write down expenses in a notepad and keep receipts in a bag. This cause mistakes, with the most common including; submitting the wrong amount of taxable income (43 per cent), losing paperwork (22 per cent) and incorrect expenses calculations (17 per cent).
The research comes as HMRC looks to roll out its new “Making Tax Digital” legislation – immediately after Brexit on 1 April 2019. Every VAT-registered business above the £85k threshold will be required file their tax digitally with compatible software. According to UK small businesses, digitisation has saved them time (27 per cent) and money (22 per cent), with one in 5 (22 per cent) saying digitisation encouraged entrepreneurism and would help trigger future start-ups.
Xero is rolling out its Making Tax Digital functionality (out of beta) soon and to help small businesses get prepared, the latest episode of Xero’s cartoon series, created by the Oscar-nominated artistic duo Alison Snowden and David Fine, has been released. The 30-second Dexter the Digital Tax Advisor educational film is to concentrate minds ahead of the Making Tax Digital shake-up, showing accountants and businesses how easy it is to make the switch to digital.
For further information on Making Tax Digital for VAT visit Xero’s Making Tax Digital hub.