How to benefit from the digital accounting age

Andrew Garvey

Making Tax Digital (MTD) is already having a transformative impact on small and medium-sized plumbing businesses across the UK, explains Andrew Garvey, chief commercial officer of Countingup.

Making Tax Digital, which went live for VAT-registered businesses on 1st April 2019, is a new HMRC scheme that means businesses that are affected will now use accounting software to maintain their records.

Much has been written previously about the pressure on firms involved in migrating from a manual to a fully systemised approach and the need to maintain digital records.

There has even been talk in some quarters about delaying the introduction, with HMRC receiving criticism for not doing enough to promote the MTD campaign.

In fact, research has found that as of November 2018 as many as 40% of affected businesses had not heard of MTD.

However, while MTD may be seen as a disruptive change, it also offers plumbers a great opportunity to go digital and, in so doing, reap a wide range of rewards.

Many small plumbing businesses don’t have accounting software in place. Instead, they typically rely on manual processes and keeping receipts safe, in a drawer, folder or even shoebox, before sending them on to their bookkeeper or accountant to prepare their tax returns. Plumbers are always on the move. As a result, receipts and invoices aren’t stored in one place and, as such, some may even get lost when travelling between different jobs, for instance.

One thing that may cause plumbers problems is using a personal current account to run their business. It’s estimated that as many as 75% of Britain’s self-employed workforce use personal accounts for business finances. As records will now need to be kept digitally, mixing business and personal banking transactions will inevitably be a source of confusion. We’re already seeing people opening business accounts with us for this reason.

By adopting the latest accounting technologies, small plumbing businesses can overcome this issue as receipts and invoices are captured by taking a photo of them on a smartphone. This will remove some of the stress of having to keep receipts and other documents in a safe place until they are ready to be submitted as part of a tax return. It also allows businesses to store everything in one place which is easily accessible.

Additionally, by recording business expenses more accurately, it is also likely to reduce the business’ tax liability, which is a significant advantage.

MTD will also give plumbers greater visibility of how their business is performing. At the moment, many small plumbing businesses rely on cash machines to give them an overview of their finances. However, this isn’t a true representation of the current situation. All bank statements or cash machines show is how much cash is currently in the account and that doesn’t take into consideration outstanding outgoings and tax deductions. With the adoption of the accounting software necessary for MTD, plumbers will gain a more accurate view of their accounts, rather than just their cash situation. With this increased transparency and visibility of accounts, they will have a better awareness of how much cash is really available to them and avoid getting into debt by withdrawing more cash than they technically have at their disposal.

At the moment, the process of filing a tax return and generally doing the accounts conjures up images of spending prolonged periods of time sitting either at a desk in an office or at home around the kitchen table surrounded by paperwork. For owners of small plumbing businesses this isn’t typically a convenient approach and may even mean taking time off from plumbing jobs in order to complete the process.

Although the move to MTD has been viewed by many as a negative, it actually provides small businesses with a great opportunity to gain a more accurate view of accounts, make the process of filing tax returns more manageable and reduce the amount of time spent on it. Adopting accounting software at this stage also allows plumbers to not only meet the current demands of MTD but also prepare for future regulation and become more efficient and competitive as organisations. With many of these benefits visible in the short-term, adopting MTD sooner rather than later will be truly beneficial for plumbing businesses.