Taxes are a very complex part of running a business. They are also one of the biggest sources of frustration for entrepreneurs.
One of my colleagues recently discussed the problems that taxes can create. He has an affiliate marketing business and lives in the United Kingdom. He was promoting affiliate offers with Bing Ads, before he noticed that 20% of his income was disappearing.
What was the cause of this? He was being charged a 20% VAT tax on his Bing Ads deposits. He had to go through a lot of trouble resolving the issue and requesting a refund on the VAT charges that he had already been forced to pay.
This is a common problem in a digital economy. You have to deal with uniform tax requirements and point-of-charge taxes. It is also frustrating when agencies assume that you owe taxes that you shouldn’t have to pay, because you didn’t take the right precautions upfront.
Solutions to Digital Tax Issues
The good news is that there are ways that you can resolve digital tax challenges. Understanding the nuances of the digital tax system is important.
HMRC has set out a goal of implementing a digital tax system. The making tax digital initiative is a key government project to make it easier for businesses as well as individuals to get on top of their tax affairs and to get their taxes right. Since businesses spend so much time on tax issues, this should reduce their burden.
This means that the annual tax return is nearing its end. This is because the digital tax records will be linked directly to HMRC’s system, allowing taxpayers to receive and send information directly on their software.
When fully implemented, paper records will no longer suffice to meet the requirements of the tax laws. It will become mandatory for landlords and businesses (limited, partnerships, and self-employed) to use electronic spreadsheets and accounting software to store their accounting records. As such, it is important for SMEs to ready themselves to meet these requirements as set out by HMRC as early as possible.
Herein are our top 5 tips to ready your accounting system.
TIP #1: If you run an SME, it is critical that you use an accounting software and operating system that can create and store records in a digital format.
TIP #2: Ensure that the accounting software you use is able to function over the cloud and that it has the capacity to accessed and updated whilst using mobile devices.
TIP #3: Ensure you have a secure internet connection. Moreover, train your employees to use the internet and your data securely and safely.
TIP #4: In order to meet the first deadline, ensure that your accounting system can create VAT returns from the digital records stored and provide HMRC with the digital VAT information on a voluntary basis.
TIP #5: It is also important to ensure that your software providers have a road-map to update the accounting software and ensure strict compliance of the digital tax system. Moreover, the software should be able to keep up with various development HMRC makes with regard to Making Tax Digital. At the basic level, however, the software should be able to receive information from HMRC via application programming interfaces (APIs), thereby allowing HMEC to send you ‘nudges’.
Digital Tax Systems Will Save A Lot of Trouble
Business owners have to deal with a lot of headaches with taxes. The good news is that the HMRC is developing a new initiative to simplify things. This should go over well for most entrepreneurs.