Digital Tax: what you need to know
October 31 2018 was the deadline for submitting paper self-assessment tax returns. The next deadline (for online submissions) is January 1 2019, then on April 1 2019 the Making Tax Digital scheme (MTD) will make online VAT tax returns mandatory for all businesses above the VAT threshold (£85,000). In less than six months, your taxes will be digital whether you are ready for it or not. As experts in this field, the tax accountants at Tax Agility have compiled together all the information you need to know.
What’s actually required?
On April 1 2019, all businesses above the VAT threshold will no longer be able to keep manual records of their VAT legally. From this point onwards, digital records must be created and stored in appropriate software such as spreadsheets. The data must be able to connect to HMRC via an Application Programming Interface (API). In this case, the API is a specialist accounting software that is compatible with HMRC’s systems and allows for the data to be transferred directly, rather than the figures being manually entered into the HMRC portal.
The software used must also meet other specific requirements, including but not limited to:
- It must be able to keep the required records in digital form and preserve them for up to six years
- It must be able to create a VAT return from digital records (it cannot rely on manual records whatsoever)
- It must be able to provide HMRC with additional data on a voluntary basis
- It must be able to receive information from HMRC about the business’ compliance record.
In most cases, the software you choose should already be approved by the government, in which case it will be capable of this already. However, if you choose independent software, then you will need to know its capabilities before you agree on using it.
A helping hand
Don’t panic if this all sounds overwhelming to you, because there are some tools you can use to help yourself out.
As a business owner, you may have already received an invitation to try the pilot scheme for MTD on a voluntary basis. Although the objective is to help test the systems, getting involved now can prepare you for the changes sooner than later.
On the government website, there is a list of compatible API software that you can use to submit VAT returns. Any of the programs from this list will have all the necessary functions, and you can theoretically choose any one of them. However, some have more support than others: users of Xero, for example, can benefit from the specialist cloud accounting support we offer.
Tax Agility can help with MTD
At Tax Agility, we’ve worked with Xero for such a long time that we’re now gold partners, a position that gives us several benefits we can share with our clients.
For more information on how Xero can help your business into the next era, give us a call on 020 8108 0090 or use our online form.
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Potholes to avoid with a new start-up
In a recent post, we talked about five tax-saving tips you need to know if you’re starting a new venture, giving you valuable information whether you’re a seasoned start-up pro or completely new to the entrepreneurial world.
In this post, we take it a step further and focus on the potholes you’ll need to avoid to help your start-up flourish during the “growing pains” phase.
Avoid mixing your business and personal expenses
If you mix your business and personal expenses then it becomes far more difficult to keep track of them all. This can lead to you missing out on money that you could have otherwise claimed back.
Mixing business and personal expenses can also land you in trouble with HM Revenue and Customs (HMRC), as claiming business expenses as personal ones (or vice versa) are illegal.
For example, HMRC disagrees with the way many businesses deduct travel expenses from their taxable income. If this happens to you and if you want to bring a case against HMRC, you may end up paying more for the cost of litigation, so consider turning to a business accountant who can help you sort out your taxes at the first place.
Choose an appropriate legal structure
Depending on the size of your start-up, you can choose to set up as a sole trader, establish a partnership or register a limited company. The system and structure you choose will define the paperwork you’ll have to complete upon starting your business, the taxes you’ll be liable to pay, the manner in which profit can be taken out of your business, and your personal responsibilities should your business incur a loss.
There are also other rules to consider - if you need a licence or a permit, if you intend to sell goods or services online, or if you want to trade with EU countries. Discuss with an experienced small business accountant to get the appropriate advice.
Take advantage of tax reliefs and incentives
You should always apply for all the tax relief benefits and incentives available to you. At present, tax relief and incentives for business include Business rate reliefs, Enterprise Zones, Seed Enterprise Investment Scheme (SEIS), Employment Allowance, Annual Investment Allowance, Capital Allowances, Enterprise Investment Scheme, Venture Capital Trust Scheme, Capital Gains Roll-over Relief, Research and development tax credits, Patent Box, Social Investment tax relief, Creative Industries tax relief and Entrepreneur's relief. Discuss with your accountant and see if any tax reliefs are applicable to you.
Get help from an accountant
Frequent mistakes on VAT return, errors on tax forms, and years of making a loss are some of the reasons why HMRC may begin a tax investigation against you. Running a business without having a qualified accountant going through your books is also something that HMRC wants to verify. Get help right away from a business accountant because you may end up saving more time and money.
Experienced start-up accountants
To speak with the business start-up professionals at Tax Agility, get in touch today on 020 8108 0090, or use our contact page to arrange a complimentary, no obligation meeting.
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3 easy tips to make the most out of cloud accounting
The government’s Making Tax Digital scheme is fast approaching and with all businesses expected to be reporting their tax online by April 2019, time is running out to switch to cloud accounting. At Tax Agility, we have years of experience with Xero and Freeagent accounting software, and we’ve got a few easy tips to make your transition that much smoother.
1. Make sure everyone is involved
When making a transition from an accounting software installed in your local machines to a cloud-based accounting software, you need the right support, particularly if you have an immense amount of data to transfer. Getting your bookkeepers and relevant staff involved as early as possible is key. Don't underestimate the scale of change required either - get help from experts if you think the switch will disrupt your daily operations.
2. Choose the right software
There are many options for cloud accounting software on the market right now and each has its own advantages and disadvantages. For example, if you already understand some basic accounting principles, you may choose more sophisticated software like QuickBooks. However, if you want something that is easy to use without having to learn any accounting principles, consider Xero. Other features to consider depend on your set-up, like if you need to have a payroll function or if you would like to integrate inventory management with an accounting system.
At Tax Agility, we’re gold partners with Xero, which gives us access to exclusive benefits that we can share with you. Our certified Xero experts are also available to help you get the most out of your software. You can learn more about Xero in this post: "Xero Accounting: update your business".
3. Don’t be afraid of asking for help
Just because you’re on track to get everything sorted, doesn’t mean you shouldn’t ask for help. One of the greatest benefits of cloud accounting is the streamlining effect it can have on your business when executed properly. Once integrated into your operations, it would be foolish not to take advantage of it.
Although most cloud accounting software is designed with ease of use in mind, many offer add-ons to allow each business to tailor the software to their own needs further. Professional advice can help you set up the add-ons you may find useful in the future, and get you into the necessary habits that will keep everything running smoothly.
Talk to cloud accounting experts
When you do decide to make the transition, the structure you end up with is likely going to be the one you rely on for many years to come. It’s vital to get it right the first time around, especially as it’s going to dictate how you manage your business finances and taxes going forward.
To find out more about how our tax accountants can get you comfortable with cloud accounting, get in touch on 020 8108 0090 or fill out our Online Form.
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To loan or not to loan: when to borrow for your business
For most start-ups, the biggest obstacle is lack of money. Whether it's initial start-up capital or regular cash flow, funding is a constant thought on many entrepreneurs' minds. And for good reason too: a lack of funding is one of the most frequently cited reasons for start-up failure.
As a result, many start-up owners are turning to loans to make ends meet. These can help keep a business afloat in the short-term, but may lead to more problems such as debt further down the line. So should you seek out a loan as a start-up? And, if so, how do you secure such a loan?
Questions before you apply
Firstly, before applying for a loan, it's a good idea to ask yourself some pertinent questions. If you're unsure of the answers, then discuss them with a small business accountant:
How much do you really need?
A month-to-month cash-flow projection can help to work this figure out. Venture towards over-estimating rather than under-estimating, as the latter can cause problems down the line.
Will you qualify?
Knowing if you will qualify beforehand is important, as multiple failed applications will lower your credit score and affect your future prospects.
Do you have the cash flow to repay the loan?
Don’t go to a bank without a clear plan of how the money will be used and when you can expect to repay it. If you are able to reasonably demonstrate how you will return the funding, it will boost your chances of securing a loan.
Is the loan going to help your start-up to grow?
Use the money wisely and focus on growth. If you plan to throw good money after bad, then it's time to examine your circumstances and see if you're in what an economist would call the 'sunk cost fallacy' - where you continue to push on hoping to recover your losses, despite it being unlikely that you will.
Are your personal finances and documentation in order?
Incorrect or missing paperwork can often prevent a loan from going through in the first place. Before and during the process, make sure all your papers are in order and presentable. If it’s proving difficult, then consider hiring a specialist accounting and bookkeeping service to help you get everything together.
Are start-up loans a good idea?
More and more people are starting up businesses. In 2016, nearly 700,000 businesses were created in the UK – up 50,000 from 2015. The number has been attributed to government-backed programmes such as the aforementioned Start-Up Loans scheme, as well as the wider Start-Up Britain initiative.
However, on average over 30% of business owners who secured finances through the UK government-backed Start-Up Loans scheme defaulted on their repayments. In light of this, banks are notoriously wary of start-ups, and lenders need to see evidence of capital, assets, collateral, proven capacity and an impressive credit rating before they will even entertain the thought of parting with their cash.
Before going to a lender, make sure you meet the basic criteria for a loan. You need to be clear about the purposes of the loan, demonstrate how you will repay it, and find ways to reduce risk to the lender.
When should you apply for a loan?
Those with an already existing start-up are eligible to apply for a loan from the Start-Up Loans scheme, as long as they can demonstrate the potential for growth. This can mean loans to rent new premises, purchasing new equipment, investing in marketing materials or creating a website.
The scheme can also help start-ups that are struggling to grow due to cash flow issues. They can be caused by late payments from clients or an attempt to fulfil an unexpectedly large order from a customer. In these instances, a loan can fill the gap until the normal finances catch up again.
If you have hired professional help to grow your start-up then mention it during the application, as this will also improve your chances.
Other avenues of funding
Financial support from friends and family can help get you started, and the money doesn't come with a high interest rate. However, the amount they can loan is often small, meaning this is usually only an option for new or very small businesses.
Crowdfunding has also become an important option for start-ups. Websites like Crowdcube allow investors to purchase equities in a company, and it's becoming an increasingly common source of funding. In 2017 the platform generated £130 million of investment and launched 325 businesses, and in 2018 they have encouraged a record-breaking £50.4 million of investment in Q3 alone.
Lastly, angel investors are also a good alternative for eager entrepreneurs. Popularised in the UK by the TV show Dragons' Den, it's estimated that there are close to 20,000 business angels within the UK, investing £850 million a year. These investors tend to have quite a few years of experience, and they are often a valuable source of both money and networking opportunities.
You can find out more about alternative sources of funding from our blog ‘How to acquire funds for your business’.
Turn to Tax Agility - the small business growth specialists who can help
For new start-ups, loans are an enticing way of getting a business going quickly. However, for older start-ups, they can serve a crucial role in allowing them to grow their business and helping them deal with cash flow issues.
There is no right or wrong 'catch all' answer to the question of whether a loan is the correct choice. Each business is unique, so it is up to entrepreneurs – with the help of a financial adviser or accountant – to determine whether a loan would be good or bad for their business fortunes.
You can also turn to an accountant for help. At Tax Agility, we specialise in growing small businesses and start-ups, and we can help you decide whether a loan is beneficial for you and advise you on how to secure one.
To find out more get in touch on 020 8108 0090 or use our Online Enquiry Form.
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