With the upcoming reform of the UK tax system on the horizon. Making Tax Digital (MTD) for VAT will launch in April 2019. Businesses with annual sales above £85,000 will be obliged to keep digital records and submit VAT returns to HMRC through MTD compliant software. Therefore this will be the first stage of the biggest shake-up of the UK tax system since the introduction of self-assessment.
Worryingly 1 in 4 businesses who are affected by MTD are unaware of the new legislation. This means no more bags of receipts or paper ledgers. Therefore it is important that businesses are working with an accountant who can help transition to a digital business without disruption. If you work with an accountant already and you have not been notified about MTD. Frankly I would strongly consider the appointing of a new accountant.
Trades which includes, plumbers, joiners and electricians will be one of the main industries affected. We have seen a number of mistakes made by
1. Appointing an accountant on price
Many business owners who are in the trades industry don’t see the value in working with an accountant. They see this as a required cost of being in business. The accountant will normally keep them compliant with HMRC and Companies House if they own a limited company.
The accountant normally provides a compliance service at a low rate with little to no business advisory led services to help their trades clients achieve their business goals. Accountants in this space look to add
The business owner has likely been referred to the accountant by one of their friends or industry contacts. Who themselves are receiving a no-frills service. Your business and your friends are not the same. Therefore you should consider other factors when appoiniting an accountant.
The outcome is that the service received is not world-class. The accountant and business owner generally have little no to no relationship and see each other face to face once per year at the annual meeting.
2. Not knowing what services your business requires
Being in business can be a lonely place. Especially if you are self-employed or a sole director. Owners have many hats and work gruelling long hours just to get by. When meeting with an accountant they often just focus on how the business operates. Such as “we fit bathrooms in new homes. We have 3 staff who are paid weekly. And we submit quarterly VAT returns. Can you help?” The accountant will inevitably answer yes and we will give a price for these services.
An example of what the business owner should say is: “I’m struggling for cash and I’m behind with my VAT payments, how can you help?” The accountant will either say how they can help. Or they might say they don’t offer this service or they do but it will be outside their normal pricing structure, and price the client out of signing up if they feel it will be
It’s clear the business has a cash flow issue and requires a level of service to fix this problem. A common occurrence is that the business does not have great financial information. Bills and receipts are kept in a shoe box and the business owner does not know how the business is performing. Or they operate a spreadsheet to record VAT transactions. This does not report on cash flow or profitability. Therefore this also means a bookkeeping issue. To diagnose where the injuries are coming from you must know your numbers. Only then can the correct course of treatment
Trades businesses can see this a necessary evil when it comes to the finance function of their business. This can mean adopting new tech and software. And appointing a new accountant. If it’s not broke why fix it can be the attitude. However, the reality is more like a car which is struggling to pass its MOT. A breakdown of the old vehicle is inevitable. A shiny, reliable new car (new accountant) that ticks all the boxes is in most cases the answer.
3. Not embracing change
Business owners. Especially in trades, if they have been in business for a number of years they can be reluctant to fully embrace change. They normally follow a routine and have processes in place which they have been adhering to for a long time. As the world moves on and technology advances.
Some business owners think implementing new ways of working will be time-consuming and detrimental to the business. This can be said of implementing new bookkeeping software. Where in fact software such as Xero and Receipt Bank will save
Perhaps the business has been working with an accountant for a number of years. They may have even met with a few new prospective accountants. But not taken any action. The business owner wants better results but trusts their accountant’s service and feels it would be a hassle to change. This is like having a gym membership which you never use. The gym is there if you need it, with all its equipment, but you think it will be a hassle to cancel so end up just keep paying membership.
This approach will not help you lose weight or get fitter. You either need to go back to the gym and be clear on your goals, and ask for a plan to achieve them. Or engage with a new trainer who will get you the results you desire.
At Accounting Inc. we are offer much more than keeping the tax man happy. Our job is to understand your business and your goals to a level you probably won’t expect. When we do, we can add really value.
When you appoint us as your accountant we will provide you with an expert system to manage all your finances, which will save you time and provide the financial information you need to improve your business’s performance. We recommend Xero btw. Xero fully complies with HMRC’s MTD for VAT. We can do your bookkeeping. Train you or your team on the software and provide unlimited support
We offer a free consultation and have some special offers on the price of software, projects and training.