With the self-assessment deadline looming, new research highlights the huge burden that the current tax returns system puts on sole traders.
The research, carried out by YouGov for 1Tap Receipts, finds that 45 per cent of sole traders spend five hours or more completing their tax returns, and 22 per cent say they spend ten hours or more on their annual submission.
This equates to a total of 1.89 million sole traders in the UK who are spending the best part of a non-charged working day on their self-assessment each year.
Deadline for businesses is looming
For the nation’s 4.2 million ‘non-employing businesses’, the run up to the deadline on 31st January can be a stressful and time consuming period in the business calendar.
1Tap Receipts commissioned the research to understand their approach and attitude towards self-assessment and to find out whether they were aware of an important new initiative set to replace it; Make Tax Digital.
The research identifies that most sole traders are taking an independent approach when it comes to managing their tax returns, as 63 per cent manage it all by themselves (without the help of an accountant or friends and family).
A quarter (78 per cent) are also opting not to use any software to compile their costs and expenses, 87 per cent are not using it to compile their revenues and 91 per cent are not using it to identify their tax liability.
Most don’t know about Making Tax Digital
Sole traders also express their thoughts on the current process for self-assessment via the research, just 5 per cent say they liked it a lot, and 55 per cent say they dislike it. Although most admit they are not fans of the current approach, the vast majority don’t know about Making Tax Digital, the initiative set to replace the annual self-assessment tax returns process by 2020.
Under the new plans, sole traders and small businesses will have to keep track of their tax affairs digitally and report quarterly to HMRC. The data they submit will be much closer to real time, giving them a clearer view of how much tax they owe and of their finances in general.
The government’s vision is that, by 2020, taxpayers will be able to see their complete financial picture in their digital account in the same way they would with their online banking.
Michael Wood, founder of Receipt Bank, the parent company for 1Tap Receipts, comments that it’s no surprise that most sole traders find annual self-assessment a chore. The process of gathering up carrier bags full of receipts and spending hours manually inputting data into a spreadsheet is time consuming and takes them away from what they want to be doing: running their business.
Wood says, ‘It’s interesting to see how many are looking forward to technology improving the process. They will be helped in this by HMRC’s Making Tax Digital (MTD) initiative. It is an important initiative which will allow these sole traders to operate in a much more streamlined and efficient way.
‘Although it’s a big change, many firms of accountants, and lots of sole traders are already embracing and preparing for it by automating parts of their tax return process to give them a real-time view of their accounts, without the headache of hours spent poring over a spreadsheet.’
Tax returns need to be more efficient, say business owners
The survey indicates that a more regular, and so less burdensome, exercise would be welcomed by most sole traders. Over three quarters (76 per cent) already report that they take time out at least once a month for financial management, and 17 per cent of these are doing so on a daily basis.
Michael Wood concludes, ‘This supports what our customers are already telling us; that they like to have an up-to-date view of their expenses and are habitually checking in to make sure they are informed. Making Tax Digital will make this much easier, giving sole traders access to much more current data than what the current annual tax return process provides.
‘Although MTD won’t be fully introduced for a while yet, tools like the 1Tap receipts app are available now for sole traders to use. The App allows the sole trader to do their expenses in a fraction of the time or to work with their accountant in a much more efficient way.’