How making tax digital is changing accounting for caterers

Making Tax Digital (MTD), which went live for VAT-registered businesses on 1 April 2019, is a new HMRC scheme that means businesses that are affected now have to use accounting software to maintain their records. Its advent is set to have a transformative impact on caterers and small-to-medium-sized catering businesses across the UK’s hospitality sector. Much has been written in the past about the pressure involved for small businesses and entrepreneurs 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 hadn’t heard of MTD. However, while MTD may be seen as a disruptive change, it also offers caterers and small catering businesses, whether private, mobile or hotel or restaurant-based, a great opportunity to go digital and, in so doing, reap a number of rewards. Keeping better records Many small catering businesses don’t have accounting software in place. Instead, they are reliant on manual processes and keeping receipts safe, in a folder, drawer or even shoebox, before sending them on to their accountant or bookkeeper to prepare their tax returns. Often, given the mobile nature of much catering work, receipts and invoices aren’t stored in one place and, as such, some may even get lost when caterers are travelling between different jobs, for example. One thing that may cause caterers problems is using a personal current account to run their business. It’s estimated that as many as 75% of Britain’s self-employed workers use personal bank accounts for all business transactions. As records will now need to be kept digitally, mixing business and personal banking transactions will cause too much confusion. By adopting the latest accounting technologies, these small businesses and entrepreneurs are able to 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. Increased visibility of accounts MTD will also give caterers greater visibility of how their business is performing. At the moment, many small catering businesses rely on cash machines to give them an overview of their finances. However, this isn’t a true representation of the situation. All bank statements or cash machines show is how much cash is currently in the account. They don’t take into consideration outstanding outgoings and tax deductions. With the adoption of the accounting software necessary for MTD, catering businesses will gain a more accurate view of their accounts, rather than just their cash situation. With this increased visibility and transparency of accounts, they will have a better understanding 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. Mobile accounting 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 catering organisations this isn’t typically a convenient approach and may even mean taking time off from working on their core business of food and drink provision, 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 caterers 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 catering businesses. By Andrew Garvey, chief commercial officer and banking and accounting app for freelancers and small businesses, Countingup

How making tax digital is changing accounting for caterers

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