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Making Tax Digital – less than 6 months to go – are you ready?

MTD goes live in less than 6 months, but research shows that 40% of small businesses that will be affected by MTD, are not yet aware of it, and have certainly not begun to prepare for its impact.

So are you affected and what do you need to do?

HMRC are about to launch their publicity campaign to increase awareness, but here are some frequently asked questions from small businesses:

Does MTD apply to me?

If you run a VAT-registered business (limited company OR sole trader) with a taxable turnover above the VAT registration threshold (currently £85,000) then YES it applies to you from April 19.

I have registered for VAT voluntarily, so I am VAT registered – but my turnover is less than £85K. Does MTD apply?

No it will not apply from April 19.  MTD is planned for all businesses over time, but you not caught in this first batch of people!

What does MTD mean anyway?

MTD means that you will have to keep digital VAT records and send VAT returns using “MTD-compatible” software from April 19.  The deadlines or frequency of returns are not changing, it is just how the information gets to HMRC.

If you are already using commercial accounting software, it is likely that the provider is working hard to make it MTD compatible, and you should be OK, though you will need to upgrade to the latest version that is compliant.

HMRC have provided a list of suppliers it is working with to provide MTD compliant software so you can check:

https://www.gov.uk/government/publications/software-suppliers-supporting-making-tax-digital-for-vat/software-suppliers-supporting-making-tax-digital-for-vat

I keep my accounts on a spreadsheet – is that still OK?

Technically yes, but I would be thinking about switching to a digital package!

If you use a spreadsheet, then that spreadsheet must be able to submit the required data to HMRC digitally and to do this you will need to add “bridging software”.  This is a piece of software that will extract the data from your spreadsheet and send it to HMRC in the correct format.

What you will no longer be able to do is physically retype in figures from one piece of software to another.

We have no examples yet of what this “bridging software” might look like – all we do know, is HMRC aren’t providing a free version for you to use!

My accountant does my VAT return from the info I send them so won’t they just deal with it?

Sadly no!

The portal that accountants use to submit vat returns will be closing, as this requires someone to type the information into it – and this will no longer be allowed.  Nor can your accountant take your spreadsheets, correct a few errors, and then retype the information into a vat return and submit it, as the information flow has not been digital.  HMRC have said that “cutting and pasting” information will be acceptable for the first year only, to give people time to update systems.

So what do I need to do if I am affected?

You need to look at how you keep your accounts, and if you have not yet moved onto a digital package, now really is the time to do it!  The start of your new financial year is the perfect time, so if that falls between now (or even a couple of months ago) and 31 March, then I would switch your accounts over now, so you are up and running smoothly when the changes come in.

Digital accounting packages are not expensive – prices can be as low as £9 per month, with add ons that allow you to submit receipts electronically.  Switching to digital will save your business time, and give you more accurate data about your business in real time, so be brave – bite the bullet and go digital!!

HMRC are still wanting to bring in MTD for everyone, so although the timetable has been pushed back to at least 2020, even if you don’t have to make the switch before April 2019, it is worth assessing how you keep your accounts and if it could be more efficient!

For more information please contact Rosie Forsyth at Wilkins Co.

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Making Tax Digital – All Change Again!

The government has announced major changes to the Making Tax Digital proposals- again!

Put on hold while we had the election, the changes now announced mean that MTD will affect far fewer people in the next couple of years than the initial plans.

MTD will initially now only apply for VAT.

Self-employed individuals who are VAT registered will have to file under MTD from 2019 – so they will need to file quarterly returns from MTD compatible software.

Other self-employed individuals and landlords will now not have to keep digital records, or update HMRC quarterly until at least 2020.

There is no news on the timetable for companies, but it will be at least 2020 before they need to comply.

This delay will give small business more time to make the transition to digital and is welcome news to many.

Having said that 2020 is not that far off, and clients who are switching to cloud accounting are benefiting from the real time information it brings them about their business – and the time savings made from being able to scan receipts on the go, and no longer living in dread of “accounts day!”

For more information please contact Rosie Forsyth.

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Getting your Bookkeeping in Shape

We are now well into the new tax year and if you have a new business, or your bookkeeping system leaves a little to be required – it’s time to get it into shape!  Leave it too long and the mountain of receipts just keeps growing!

If you have set up a new sole trader business this tax year – there are couple of things you must do straight away:

  1. Register with HMRC – you can click here to do so.  This tells HMRC you are self-employed and means they will ask you to complete a tax return.  You need to do this within 3 months of starting your business.
  2. Set up a separate bank account.  This can just be another current account but it’s really important to keep your business income and costs separate from your personal money.  You might want to set up another account as well where you can put money aside for your tax bill.
  3. Buy a couple of folders (and keep the receipt!)

What Records do I need to keep?

You need to keep records of your sales and costs.  You won’t need to send these to HMRC but you need to keep them so you can work out your profit or loss for your tax return, and show them to HMRC if asked.

There are many ways you can keep your records, ranging from pen and paper to accounting software and the key is to choose one that suits you.  If you don’t get it – you aren’t going to keep it up to date!  The way we report our figures to HMRC will be changing – Making Tax Digital is on hold for now, but it is expected to be back on the agenda when the Government has sorted itself out, so before long we will need to be keeping digital records.

There are some great Apps out there now for scanning receipts and recording your data for you, so if you are just starting up your business, I would go straight for the digital option.  Take a photo of your receipt when you get it, upload it, put it into the relevant category, and then bin it – job done! You will save far more than the monthly subscription fee in regained time.

Even if you just go for an App to record your expenses (Receiptbank is the one I use) then the rest of your record keeping is pretty straightforward.

For your Sales:

Keep a copy of every invoice that you send out (paper or electronic).

Keep a record on a spreadsheet of all invoices raised – noting the date it was issued, the number (keep these sequential), who it was to and the amount.  Have a final column where you note the date the invoice is paid – perhaps in a different colour so it stands out!  You can then easily see who owes you money and how long the invoice has been outstanding – so you can get chasing!

Expenses:

It’s really important to keep track of what you are spending.  Try to pay for everything related to your business directly from your business bank account – this will make recording expenses so much easier.  Some things you will have to pay in cash (parking etc) but wherever possible use your business account debit card.  Even in Tesco if you are buying bits of stationery, pay for this separately to your weekly shop, or you will probably forget you bought it and you won’t claim it against the business.

If you haven’t gone for the App then keep a spreadsheet of your expenses.  It’s a good idea to have one spreadsheet or tab for all costs that you have paid for from the business account and another one for cash payments.  Your spreadsheet should note the date, the supplier name and the total.  It should then break down the amount into categories so you can keep track of what you are spending – the categories can be whatever you like and what will be useful for you – but might include post, stationery, travel, parking, website, networking, subscriptions etc. Don’t forget to include a category for money that you have taken out of the business for yourself, as you will need to “pay” yourself at some point!

Keep the actual receipts for your expenditure in a folder if you haven’t zapped them on your phone – filing them by month is a good idea and for the super organised, number them and cross reference them to your expenses summary spreadsheet, so when your accountant queries something you can find the receipt quickly!

Other Costs

If you use your car for business then the simplest way to charge the business for this is to recharge the mileage.  The business can pay you 45p per business mile – so you need to keep a record of the business mileage that you do.  You might chose to keep a notebook/diary in the car to keep a log, or to keep a spreadsheet but somewhere you need to keep a record of the business miles you have done.  Every month, or quarter, total this up and repay the amount due to you from the business account – not forgetting to note it on your expenses summary!

Keep a record of your mobile phone bill and internet costs as you can also reclaim a percentage of these from your business.

Bank Accounts

Print out your statement when you get it and file it in your folder.  Check the items on your bank statement to the income and costs on your summary and make sure you have everything recorded.

When you are paid by a client, it’s a good idea to put a percentage of this aside into your “tax” bank account to save for you tax bill – the amount you need to put aside will vary depending on your personal circumstance, but between 20 and 30% as a guide.

If you follow these basic steps then you are well on the way to having a good bookkeeping system.  Try to keep this up to date – there is nothing worse than sitting down to catch up the last 6 months!

Using your phone to zap your receipts is strangely satisfying (and the kids love it!) so I would really recommend going down the digital route to keep your records – contact me for prices.

If you are happier sticking to spreadsheets for now then do contact me by email for a template that can be used.

 

 

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What is Cloud Accounting?

With Making Tax Digital being introduced in April 18, all small businesses will have to keep their records digitally – “in the cloud.”  But what is that exactly and should you be getting ahead of the game and moving over now?

Cloud accounting is the same concept as accessing your bank account online.  A few years ago, you wrote cheques and sent them in post; you would never have thought of accessing your bank account and doing your banking online.  With an online accounts package, you can access your data from anywhere and upload expenses and receipts to it as you get them in the shop.  You don’t need to install software on your desktop, keep it up to date, or back up your data.

If your computer dies, all is not lost as your data is still there in the cloud.

The real benefit of cloud accounting is that it is done in real time, so your accounts are always up to date and you can make business decisions based on actual information.

Giving your accounts to your accountant 8 months after your year end and getting them back a couple of weeks later may tell you what tax you have to pay, but it’s a bit late for your accountant to then point out that your advertising spend was out of control, or you have several invoices that haven’t yet been paid.

Cloud accounting gives you, and your accountant relevant information on which you can make informed decisions.

 

So how does it work? 

In most packages you raise your invoices in the software – and email it straight out.  It can automatically send out reminders to your customers that the invoice is due for payment, or overdue.  You can get your bank statement “fed” directly into your package, and simply set up rules, so that every time the software sees a payment to say “Shell” – it puts it in the “Motor expenses” category.  No need to produce a spreadsheet for your accountant to go through.

The popular “add-on” is an app called Receiptbank – which you have on your phone and you simply take a photo of your receipt and press a button.  It makes a lovely “whooshing” sound and that’s all you need to do.  You can bin the receipt, knowing that it is safely recorded in your accounts.

No more throwing all your receipts in a pile to deal with later, or losing them and not being able to claim for items because you can’t find the damn paperwork.

Cloud accounting is generally subscription based – so you will pay anywhere between £5 and £30 per month depending on which package and product you go for.  Most VAT registered small businesses will pay between £10 and £20 per month.  Popular options are Kashflow (my favourite), Quickbooks,  Xero and Sage – and most will offer a 14 day trial so you can try before you buy.  Receiptbank is usually about £10 a month on top of this.
There is a more basic version of Receiptbank called 1Tap – ideal for non-vat registered sole traders – at only £6 per month.

So it may sound expensive – but £25-£30 a month could completely transform the pain that is doing your accounts.  How many hours does it take you a month?  How many hours on top of that putting it off?  What’s that worth to you if you got that time back and could use it to either do more billable work – or spend more time with the family?  With these package you will definitely save time – and stress!

 

So is it for you? 

For all but the very small businesses, I would say yes.  Making Tax Digital is going to force it on you anyway, and I’m advising all my clients to make the switch from April 17 so are fully up and running when MTD comes in. Just image a world without the dread of accounts………..!

 

For more information please contact Rosie Forsyth.

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Cloud Accounting – Is it for me?

More and more business are starting to use cloud accounting software for their businesses.  But what is it and should you be using it too?

Cloud accounting is the same concept as accessing your bank account online.  You don’t need to install the software on your desktop, keep it up to date or back up your data. You can access your data from anywhere that has an internet connection and collaborate easily with your accountant who can access your real time data as well, if you let them!

Cloud accounting is generally subscription based – so you will pay anywhere between £5 and £30 per month depending on which package and product you go for.  Most VAT registered small businesses will pay between £10 and £20 per month.
Popular options are Kashflow (my favourite), Quickbooks, Freeagent, Xero and Sage – and most will offer a 14 day trial so you can try before you buy.

The main advantage is that all your information is in one place.  You can add logo’s etc so you can raise your invoice directly from the software, it will then show you who owes you what – and how old the debt is.  With “automated bank feeds” you can link your bank account to the software so you can download your bank statement directly into the package.  It will then match up receipts with outstanding invoices and payments with suppliers for you.  Other amounts paid from the bank can be allocated to a category such as “stationery” or “materials purchased” quickly and easily.

You can even get “add-ons” now such as “Receiptbank” (payable extra) where you literally take a photo of your receipt and an app whizzes it off to your accounts package for you.  No more losing receipts or sitting down once a month to put them all into a spreadsheet.

Another advantage is you can see how your business is doing during the year.  I have some clients who hand their books over once a year and have no idea what their sales figure has been for the year, or if they have made a profit or loss.  Cloud accounting produces real time key data for you – in reports or graphs for you “creatives” out there!

So is it for you?  If you have sufficient transactions to make your bookkeeping a chore, or if you hand your accountant a shoebox at the end of the year full of receipts that have probably been through the wash once or twice – then definitely!   The monthly cost is minimal given the time savings involved.

For very small businesses, then you may find your spreadsheet is adequate for now but with HMRC pushing for everyone to have “digital tax records” by 2020 or sooner, it may be that cloud accounting will soon be the way forward for everyone.

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