Workingmums.co.uk looks at some changes coming in in April aimed at simplifying the accounting system for small businesses.
April is heralding a lot of changes in the tax system. On the positive side is the raising of the personal tax allowance to £9, 440 for the 2013/14 tax year. Another major change being introduced to make it easier for self-employed people to do their taxes is a changeover to a simpler accounting system.
Cash-based accounting or money in money out [MOMI] applies to all people who become self employed from now on and for all people who are self employed but claim benefits such as tax credits to supplement their income.
When universal credit is introduced [it’s being piloted in Thameside from the end of April and rolled out nationally later this year] people will have to inform HMRC monthly of any significant changes to income as this could affect their payments.
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Those who are already self employed and earn under £154,000 have the option to go to MOMI or stay as they are.
HMRC and DWP have been working with a handful of companies on possible ways to help people with MOMI.
One which will be listed on HMRC’s website as a Mobile Record Keeping App and also for Cash Basis Accounting and Simplified Expenses is www.text2savetax.co.uk. Registering on the site for free, you can text any expenditure or income via your mobile phone any time money changes hands and your records will be updated. The idea is that this will help you keep on top of your income at any time so you can make better business decisions.
It will also give you the information you might need at the end of the tax year so you can do your own tax return or pay less to an accountant to do the sums because all the information will be readily available. Those earning under £78,000 will just have to show their total income and expenditure.
It works like this. If you spend £30 on petrol, you simply text a code and the amount and the website lists it in your records. Those working from home can also enter things like heating bills which they can claim part of.
The site also offers a full report at the end of the tax year for £25, showing a complete audit trail and ideas of where you can save money. In addition, there are youtube videos on filling in your own tax return, explaining what you can and cannot claim for.
“We want to revolutionise how people think about tax,” says Des Desai, the accountant behind text2savetax.co.uk, “and how they feel about starting and running a business. Good businesses have good financial management.”
He adds: “MOMI should allow people to manage their potential tax bill just as they would expect to their bank or credit card. At the moment, most people don’t have a clue and it is akin to taking your car to a dodgy garage and fearing the worst. HMRC call it giving taxpayers more certainty and the choice of how they manage their tax affairs.”
Accountants are divided on services such as text2savetax.co.uk which reduce people’s reliance on their services. Many say a good accountant can save self-employed people money. Desai says that while this is true the quality of accountants varies and the reports text2savetax.co.uk provides can also be used for other purposes, such as seeking loans from the bank.
For those who prefer to stick to the accountancy route, there are a range of cheaper 21st century options available.
One is Boox, a cloud-based accountancy website that enables self-employed contractors to handle their financial administration by: allowing the user to create and process invoices as well as record business expenses and manage customers. The site works out the individual’s tax obligations, the registration and payment of VAT, and most importantly, calculates salary and dividend payments for the owner / directors. The software is also linked to their business bank account for speedy and accurate invoice reconciliations to ensure the individual is being paid by his/her clients.
Boox says customers have total control and visibility over their businesses, but adds that should they have any questions or prefer a more traditional method of accounting each customer is assigned their own ‘Client Accountant’ to handle any questions and aid where necessary. Boox claims to be more cost-effective, instantaneous, and accessible than traditional high-street accountants and says it provides self-employed people with “a real time view of their finances”.