Nine out of 10 small business owners admit they are already overwhelmed by regulation, as HMRC launches “Making Tax Digital” on 1st April.
With one month to go before the Government’s new VAT rules come into force, almost 9 out of 10 (approx. 4.9 million) 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. 4.2 million) 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.
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 it represents a great leap forward from the pain many endure with their tax returns today.”
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 (at the moment) on 1 April 2019. Every VAT-registered business above the £85k threshold will be required to 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 1 in 5 (22 per cent) saying digitisation encouraged entrepreneurism and would help trigger future start-ups.
The latest episode of Xero’s cartoon series which features MTD, 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 aims 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.