More than two million SME owners are “at risk” of falling foul of new digital bookkeeping rules and procedures ahead of the Making Tax Digital (MTD) for VAT reform, according to the latest research by The Accountancy Partnership.
The report revealed that more than a third (37%) of entrepreneurs use paper-based systems or a collection of photos to keep track of their finances, with one in 10 storing essential documents in an old shoebox or drawer.
As part of HMRC’s efforts to become a “digitally advanced” tax administrations, digital tax records will be mandatory for all VAT registered businesses from 1 April 2022.
As well as digital records, MTD will require tax returns to be submitted every three months, as opposed to the current annual tax return.
Over the next five years, this will expand to include income tax and corporation tax, as well as VAT.
Lee Murphy, managing director, The Accountancy Partnership, said: “Records kept digitally will give SMEs a much clearer, accurate and more up-to-date picture of their finances and tax owed, which is why HMRC is going to enforce it from next year.
“Our research shows that the new system is going to force millions of business owners to significantly change the way they keep their records, and if they are unfamiliar with procedures they could be at risk of fines once the new rules are in place.”
He added: “Two-fifths of business owners say they have failed to claim expenses due to lost receipts and invoices, but digital record keeping will encourage people to stay on top of expenses, minimising the risk of losing receipts between tax returns.”