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Two-thirds of SMEs not ready for digital tax scheme

As Government plans for digitising tax reporting take shape, a new survey reveals just how unprepared many of the UK's small businesses are.

The poll has been conducted by the UK 200 Group - representing independent chartered accountancy and law firms which together service around 150,000 SME clients.

The findings show that the preferred book-keeping methods of small firms in the UK are:

  • 16% use a shoebox for paperwork and just give it to their accountants to sort out;

  • 23% use manual records;

  • 27% use spreadsheets on a computer;

  • 35% use accounting software.

By 2018, small businesses and the self-employed will have to use software to comply with HMRC's Making Tax Digital project. Only 35% of those polled already use appropriate software, such Xero. Although they are not yet reporting tax quarterly - as they will have to do by 2018 - the transition should not be too difficult for these businesses.

However, the remaining 65% of SMEs - using spreadsheets, manual paperwork or who just have a shoebox that they give to their accountant every year - could face a significant challenge.

Richard McNeilly, chair of the UK 200 Group digitalisation taskforce and managing partner of Dains, said: 

"Making Tax Digital represents the single most significant change to the UK's system of taxation in recent times, and many of our smaller business clients are simply not ready for it … small businesses have only a short period of time to update their systems and many are still unaware that Making Tax Digital is underway."

Those that have been using the most basic systems will face the biggest hurdle, McNeilly warns. 

"Businesses using software are almost there … Those using Excel spreadsheets will need to upgrade their systems, but already have experience of computer input. Even if a business is still keeping manual records, that experience of record-keeping will be transferrable, although digitalisation may cause some pain. For any business owner relying on the 'shoebox method', our advice is to take the next step and start using software."

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