February 9, 2026 • 24 mins
Making Tax Digital is scary.
If you don’t understand it.
And most people don’t.
Hi, I’m Clare Bailey, founder of Retail Champion.
In this episode of Retail Reckoning, I’m joined by accountant Rachel Parker, someone I trust with my own business finances.
We’re talking about Making Tax Digital.
What it actually means.
Why so many small business owners are panicking unnecessarily.
And what really matters if you want to stay compliant without losing sleep.
This isn’t an episode about jargon, scare stories, or buying expensive software you don’t need.
It’s about understanding how your business structure, reporting habits, and routines affect your tax, your cash flow, and your stress levels.
We talk about why Making Tax Digital feels overwhelming, why spreadsheets aren’t the enemy, how business structure choices quietly shape your tax position, and why monthly financial routines are where calm actually lives.
This episode isn’t about becoming an accountant.
It’s about feeling more in control of your business.
This episode breaks down:
What Making Tax Digital really is (and what it isn’t)
Why your business structure matters more than you think
How VAT and reporting decisions create knock-on effects
Why people cost more than just salaries
Why businesses fail on cash flow, not profit
How monthly financial habits reduce panic and penalties
If you’ve been quietly stressing about tax, deadlines, or whether you’re doing things “right”, this episode will help you breathe a bit easier and see the bigger picture.
Less panic.
More clarity.
Better decisions.
Let’s get your Retail Reckoning together.
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Retail Champion
https://theretailchampion.co.uk
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Bear with me today because we're going to be talking about one of those topics
that sends most people to sleep or at most makes them want to suddenly
clean the fridge. It's all about tax structure,
businesses compliance, and financial planning. But trust me,
it's going to be fun and it's going to be Pacey, and
I hope you'll enjoy it.
(00:21):
So stay with me today. This is not a scary episode. This is your taking
control episode. We're going to be talking about the stuff that's the difference between
feeling on top of your business and feeling like something
nasty might land on the doormat at any moment. Joining
me is someone I trust implicitly with my own business. She even has access to
the bank account. So I'm welcoming Rachel Parker. Rachel
(00:43):
has done my personal tax, vat, company tax bookkeeping,
and keeping me sane as much as anybody possibly can for quite some time.
And she's the person I go to when I make decisions as well that involves
spending money, risk or, or growth. So that's the lady that I turn to
to say, can we afford to do this? Am I in the right financial
position? Would it be better to be paying up front or should I be paying
(01:05):
monthly? How is this going to affect my cash flow? And she's the one that
keeps me solvent and as I says, keep me sane.
Owns the flow. So, Rachel,
(01:26):
thank you for being here. And I should also add, I know you don't do
podcasts and as I do more regularly, so we're going to
keep this very real and human. Hi. Thank you,
Clare. And yes, I promise I'm much more comfortable
talking to my spreadsheets and to a microphone, but hopefully this will be
helpful to anybody that listens. And that's the point, because it's all
(01:48):
about the practicalities, helping inform listeners, helping people
take away some of the stress that they feel over their tax and their accounting.
And it's not about performance. We don't have to be polished, we just have to
be honest. We're going to start with
something that a lot of businesses that I've dealt with through, certainly the local
authority contracts I work on come to me about. And it's how should they
(02:10):
be structured, whether they should be a sole
trader, Partnership limited or a cic.
And I find that a lot of people actually don't understand how
big of a decision that is, but also they think they can't change it in
the future. So why does this decision of the immediate
structure matter so much? Well, the thing is, and I
(02:32):
come across this quite A lot people don't seem to realize that your
structure affects how you're taxed, what you are
personally liable for and what records you need to
legally keep. It also has a bearing on
what you need to report, when it needs to be reported, and
why. As a sole trader, you're taxed, for
(02:53):
example, through your personal income, so you're personally responsible
also for any debts. But a limited company
is a separate legal entity, which opens up different tax
planning options, but it also brings added compliance
and sometimes people don't realise the differences. And I think this is
where a lot of people trip up, because I've certainly seen businesses who've
(03:15):
stayed being a sole trader perhaps for too long because they
thought it was simpler. Or they rush into setting up a
limited company or a CIC community interest company,
thinking it automatically saves tax. And of course it doesn't. And then they
also have to think about whether or not they're VAT registered. I mean, obviously there
comes a point where you have no choice, but these are all those
(03:37):
big decisions that actually affect how much it costs you to manage
your admin. Exactly. And I mean, there's no ideal or best
structure. There's only the right structure for where
you are now and where you're heading comes back to like what you've just said
with the vat. I know people that have rushed straight in, registered
themselves for VAT and now they're in a position where they don't
(04:00):
quite know what to do because they perhaps shouldn't have done it at this
stage. And people sometimes do that as well when they're setting up
their business, they're rushing, perhaps they know I just want
to be a sole trader and that's it. Whereas they would actually be better to
be limited. And I think that's really important. I mean, I set up my company
some shocking 23 years ago, makes me feel very old,
(04:22):
but because I knew the kind of clients I was going to work with
would expect me to look bigger than I perhaps was.
So I immediately created a limited company. I immediately registered
for vat and of course with that I had to make
sure that to service those kind of clients I had insurance policies and so on.
But had I had the clients then that
(04:44):
I often have now, perhaps being registered for VAT
just makes me more expensive because some of my clients aren't
VAT registered and they can't claim that back and I have to add it to
my billing. And I think people often don't go back
and revisit things because they think
that they're sort of stuck where they set up to be. This is one of
(05:06):
the things that people need to understand. They're not stuck.
So even if they've set up a structure, it can be changed.
It's not perfect and there is a process that needs to be followed and it's
always easier and better to do it from the start if you plan it out
in advance, but you can change it. So if you
realise that the structure you're in now isn't working for you, especially
(05:29):
at the point of going into making Tax Digital, now is a good time
to get it changed. Also, I'm going to go a little bit off piste here
because I know people who also operate as both a limited
company, because of course it's a separate legal entity, and as a sole
trader, because that works better for their different client base.
I've always thought that sounded a bit dodgy. Is that legal?
(05:51):
It is. It is actually legal, but it's all to do with how they
take their earnings from the business.
Interesting. There are different ways around how it has to be
done. Certain procedures that need to be put in place to A, protect the
person as a sole trader and B, protect the company.
Oh, that's very interesting. Now, I'm going to take that one away and talk to
(06:12):
you about that offline later. Then you've touched
on making Tax Digital. I mean, what does it even
mean? Because I'm seeing so many
colleagues, companies that I work with, they're going a bit
apoplectic over it and they're thinking that it's the end of the world, it's going
to cost them a fortune and they don't know where to start. So can you
(06:33):
tell people what it really means and sort of demystify
it and make it less scary? People are petrified.
Honestly, they are petrified. I've seen people rushing in, buying
really expensive software, going into a meltdown over it, and
there's no need. I'll say this now, take a deep breath in,
relax. It's okay. It's not that scary.
(06:56):
It's basically, in one sense, it makes things
easier because everything's becoming digital. Yes,
you still need to keep records and bits and pieces, but it's actually
easier to keep them digitally than what it is. Reams and reams and reams
of paper. The only thing with this is that
a lot of people, and I know I've come across people still doing it, A
(07:19):
lot of people, myself included, love their spreadsheets. I'm a spreadsheet
freak. I love Them spreadsheet nerds are us.
Honestly, I was scared too, I'm not going to lie.
But you can still keep your spreadsheets, but it's to do with how you report
that information to hmrc. The one thing that is
really important though is that you do need to have
(07:41):
compliance software. This is where the Making Tax Digital part
comes in, because everything from this point forward
is submitted to HMRC digitally.
So you have to have the right software to do this. But there's free
tools out there as well as paid for ones, aren't there? I mean, HMRC haven't
been that cruel. I remember when we ran payroll,
(08:03):
HMRC had a free payroll platform. So I'm
assuming there are simple and effective tools that you can upload your
data to that don't have to cost the earth. Absolutely. And
HMRC actually do have a full list. If you actually go onto their
website and do a search in their website for Making Tax Digital,
they will give you a full list of software providers
(08:25):
that they approve and therefore that will link directly to
the HMRC format, which will make the
process so much simpler. And at best you can either
go for a very, very limited paid for version or you can
get by on the free version. If you are more like a sole
trader, it's when it becomes more complex that you perhaps might need
(08:48):
to pay, because if you're reporting VAT and other things on top,
you would need a slightly more integrated
platform. Yeah, but then again, I mean, a business has to
incur certain amounts of costs for its business management.
And it's all very well and good to try and do everything on the cheap,
but sometimes it's worth paying that little bit extra. But I can imagine, I can
(09:09):
see people now gripping their spreadsheets with sweaty
palms and I can see them panicking about this. So what
do they need to remember that perhaps
is causing all this stress and anxiety about making Tax Digital?
The main part behind it all, it's to ensure accuracy and
consistency. If your bookkeeping is not up to date, it can become
(09:32):
stressful really quickly. Things can get lost, things can be really
reported incorrectly and we all know what that can lead to.
Issues with HMRC and big fat fines, and nobody wants that.
Making Tax Digital makes the process simpler and actually puts you
at less risk of falling behind on things and
maybe having issues that you don't need. And of
(09:55):
course I remember years ago I attended a presentation by the Federation of Small
Businesses and they said if you're a serial offender of not reporting
things on time or you've had a couple of fines, you're much more likely to
have a full on inspection. And of course they were trying to sell membership because
they protect their members against fines and so on and
inspections. But a lot of people, they're just
(10:17):
busy, they're not being careless, they're not trying to avoid paying what they're
due to pay, they're just busy and they fall behind because perhaps
they've not got the right support. Yes, but this is
where late and incorrect submissions can lead to automatic penalties.
With the making tax digital, it's easier to keep your records up to date all
year round and it's what helps to keep you
(10:39):
safe. One of the biggest things in
the news at the moment, particularly for retail, hospitality, leisure
and small businesses, is the true cost of people. And
of course customer facing businesses, particularly in high streets rather than
e commerce based, have to live and die by the people that they
employ. But with the cost of payroll now,
(11:01):
pensions rises to minimum wage, national insurance contributions,
depending on the number of employees you've got, it probably feels like a
minefield to a lot of people. And the true cost of staffing
really is causing a lot of distress in the high street.
The biggest mistake that people make is underestimating the true cost
of actually employing someone. So yes, how much you're
(11:24):
going to pay them per hour, per day or whatever is quite important, but that's
only one part of it. You've got your national insurance, you've got
your pensions, you've got holiday pay, you've got statutory
obligations which, as we know, as of April, these are changing.
So for example, sick pay, there's no longer going to be a waiting
period. So you could employ someone on the Monday and on the Tuesday they could
(11:46):
go off sick and you have to pay them immediately. There's no
minimum obligation there either. So you can't say, oh well, this person only does
six hours, so I don't have to pay them. They're entitled the same as the
person that does 40 hours as of April. So
it's not just thinking, oh, can I afford to pay someone
minimum wage for 20 hours a week? There's so much more on top.
(12:08):
And then ultimately there's the cost of it all that you have to pay
for PAYE to hmrc. So I didn't even know that
about the changes in April. So I again, I would
imagine that quite a lot of people who are being busy
running their business, doing what they do, serving their clients don't have
an entirely full picture of what's coming and of course, for
(12:30):
employees as well, there's been changes to what you can put into your
additional voluntary contributions if you're lucky enough to enjoy a high
salary. The last couple of budgets have really
changed the way that people consider employment
and earning, and it's a real problem, and it all takes a lot
of time. So, you know, the other thing, a lot
(12:53):
of people are looking to more outsourcing. So instead
of taking on an employee, people have portfolios of
clients and they could be, you know, the fractional job,
the fractional chief finance officer, the fractional marketing
officer, who might do a day, a month for a small business.
And so this is something I know you help me all the time. When I'm
(13:15):
looking at the outsourcing cost or bringing somebody in on a
retainer, we look at the affordability properly.
Properly with the cash flow, the profit impact and the risk, isn't it?
Yes. I mean, we have to look at whether the business can sustain the cost,
not just now, but over a long period of time. You know,
you have to determine how often you need that person to come in and do
(13:36):
that work. Can you sustain that amount, or would you be better employing
someone? You have to weigh out the cost between, you know, having someone
as an employee and how much it costs to pay that person for X
number of hours per day, per week. I mean, it's, it's such a
huge thing, especially for small business owners. And I'm seeing more and more
owners who are letting people go or
(13:59):
reducing hours because the cost of employing has
become so much higher in the last couple of years. And it's not just that
case. Is it about, can I afford it this month? Is it's like, can
I carry on with this, this decision safely, and if so,
for how long? And also, where is my break point?
If my revenue drops below X, do I now need to
(14:21):
reconsider the engagement of whoever it is that I'm
using, whether on an outsourced or unemployed basis? And it's a genuine
problem. And that's why the high streets are really struggling right now.
Yeah, I mean, you have to look at it, you have to look at the
cost and you have to determine, can I afford to do this? And sometimes
the answer is flat out no. It might be no right now, it might be
(14:43):
okay in six months. But you have to make that decision and
you have to make it quickly so that you don't fall into that
trap without being able to understand what all of
the costs are and then realizing you're struggling to pay those Costs.
And I think that's the big thing. A lot of people, they don't actually understand
how to look at the business information, you know, the
(15:06):
margin data, sales data, profit data, the seasonality,
the ups and downs. So they might make a decision this week
because it looks like there's enough money in the bank and they forget they've got
a massive VAT bill or a corporation tax bill coming. And then they're in trouble
because they haven't planned ahead. And I think that's
where people like yourself and you know, financial professionals
(15:28):
really come into the mix. Because if you're busy running a business, the last thing
you need to be doing is sitting analyzing the beloved spreadsheet.
Forecasting is so valuable, it really is. And people
don't realise a lot of people are focused on the now and not what
comes next. Yeah, and I think that you can't underestimate
that because I've seen businesses, I mean, I worked with Woolworths just before they
(15:49):
collapsed and they were in a solid position, but because they'd got
so much money tied up in dead stock, they collapsed and they
also lost their credit insurance. So businesses die on cash flow, not. Not
on profitability. Which leads us into
talking about the deadlines because that comes into
all of the reporting. What do you need to know when
(16:12):
filing and why monthly is really important? I know
it's not very sexy, but it is that thing that keeps
businesses alive. Yeah. And one thing that I really do
need to state, deadlines are non negotiable. You cannot move them.
You know, once you've set your accounts and everything up, if you are set by
the monthly or VAT or quarterly, you
(16:34):
cannot change that. That's set in stone. And you have to make sure
that you get things done at that point. Because
your vat, paye, corporation tax, all your
annual accounts, if you miss any of them, it leads to penalties
and they're automatic. You can't just go, oh well, I'll leave it for a week.
You get flagged, you do get flagged. If you get like a
(16:57):
couple of penalties, even if it's just a genuine innocent mistake,
you're putting yourself more at risk of getting further penalties
and more investigations, which actually takes a lot of
time. So much as it may seem something like everybody wants to put
down the priority list. Doing it monthly is where
calmness lives and where not losing money over
(17:20):
penalties and panic lives as well. Because last minute
sounds like an absolute disaster. Yeah, exactly. I
mean, your best bet is to review everything monthly because you can
Pick things up. You can spot mistakes, you can spot if something's
missing. You know, if you're looking at statements and things, you can see that
something doesn't reconcile. So you can find out why it doesn't reconcile.
(17:42):
You can make sure that everything makes sense and nothing's then a surprise.
You're not going to try and submit a VAT return and find out that
you've not been compliant. Your records are all there.
Do you remember when we first met and I was absolutely befuddled
about what on earth was going on with my accounts? My bank recs didn't
work, I couldn't get to the bottom of it. And the person who
(18:04):
had been looking after things before you had created a few errors
and reported things in the wrong direction. So
I was like, what's going on? And there was double reporting and all
sorts of mistakes. And I guess because I was too
hands off and I trusted this person because they were really very
highly qualified, those historical issues never really came to
(18:27):
my attention until that person left and
I realized that something was wrong. And you managed to
go through it with a fine tooth comb. And we found all kinds of
stuff that I thought something must be wrong, but I never really
understood why. But the numbers never quite stacked up. That is
my personal example of when
(18:49):
you're a bit too hands off. So even if a business out there is working
with an accountant or a bookkeeper or anyone who does financial admin,
they also need to make sure they personally understand what's going
on, because if they don't, it can turn into quite a mess.
And obviously that data is fundamental to knowing
and having the confidence in making your business decisions as well. And
(19:12):
there's a lot of people out there that are very hands
off. And I get why a lot of people are hands off. You know,
you were so busy, it's. Not their thing, is it? No. But you were also
so busy with everything. And we've got to go back to the times of COVID
Got to bear in mind that a lot of stuff had been done remotely because
of the restrictions around Covid. As you know, it took
(19:34):
me a long time to sort that data out and even then,
when we thought we were sorted, I came to do. I believe it was the
year end. Yeah, something very fundamental.
And again, something was wrong. So I had to go back all the way back
through the data to find out what was wrong because
we were keeping track of everything at that point.
(19:56):
It was a case of tracking down what that dispute was in the
data to correct it. And because we didn't wait till the very end
of the deadline before submission, it meant we had time to go through the data
comes back to that not leaving it till the last minute panic. And obviously now
everything's corrected and you know, I can run a report at any time and
you know, the figures that are in that report are correct.
(20:19):
And this is the bit I really want people to hear and understand,
because finance isn't just in compliance isn't just compliance. It's your
lifeblood. It's like the oxygen in the air that you breathe to
keep you alive. And if you're running a business, you need to
understand your finances in a much deeper way than
just meeting deadlines. Exactly.
(20:42):
Compliance is a bit that keeps you legal, it keeps you above,
you know, all those fines and all the scary investigations.
Strategy helps you to grow, but understanding
your numbers, what they mean, what they represent, helps
you to decide when to invest, how to price,
when to pause, and how to protect that really important cash
(21:05):
flow. And I think for a lot of businesses, that's where
they have the sort of empowering moment, that light bulb moment, a
confident shift and your numbers stop being a threat
and a compliance issue and they start being a tool.
Yeah, exactly. You're still making the decisions, but you're making them much
more informed. I always say on my LinkedIn profile that I am a
(21:28):
data driven decision maker. I am a bit of a numbers geek. Not to
your level, but I mean, finance is very much like what I used
to do in supply chain with the forecasting, the planning, capacity
management and all the logistics around it. And this is just
your. Basically it's your supply chain of money that makes sure
that you can pay yourself, pay your bills, pay your suppliers,
(21:51):
and deliver your customer experience to the best possible thing. So
hopefully anyone who's been listening to this is feeling maybe a
little bit more informed, a little bit lighter, a little bit more
confident. And I guess my
key takeaways from what you've told me, Rachel, correct me if I'm wrong,
but your business structure matters more than you think. And if you
(22:13):
need to revisit it, do it. It's not set in stone. So
if you started off as sole trader and want to be limited or vice versa,
just take a look, get some advice. Then number two,
I'm scared by it, but you're making me feel a lot better. Making tax
digital isn't scary, but you do need to be organized and you need to be
organized pretty much now. People cost money more
(22:36):
than salaries. So plan properly, consider Outsourcing
versus employment, fractional support, people on
retainers and so on, because they're next to things like your
property and your product, probably your biggest cost.
Having monthly routines is better than last
minute panic. And the most important thing for
(22:58):
me, because I'm. I guess you do all the financial accounts and
whatnot, but you're capable in management accounts. I'm much more towards
management accounts and commercial decision making. So I'm
very much the strongest advocate of using your numbers to support your
decisions. And if your numbers don't stack up, do something
else. So, Rachel, thank you. I hope everyone who's
(23:20):
listened has got a lot out of this. Thank you so much for your time
today. No, thank you, Claire. And I hope people feel
reassured that support doesn't have to be complicated or intimidating.
And I promise making Tax Digital is not scary.
Well, that's the message, isn't it? And also for people who are trying to do
this alone, you don't have to do do this alone. With right systems, the
(23:43):
right people, the right advice, it's manageable, even
hopefully empowering. So if this episode's helped you,
please do share it with someone who's quietly stressing about tax payroll or making
tax digital. I'm Claire Bailey. I've been joined by Rachel
Parker and this has been Retail Reckoning.
(24:04):
Retail Reckoning. No space for
dusty shelves.
Bear with me today because we're going to be talking about one of those topics
that sends most people to sleep or at most makes them want to suddenly
clean the fridge. It's all about tax structure,
businesses compliance, and financial planning. But trust me,
it's going to be fun and it's going to be Pacey, and
I hope you'll enjoy it.
(00:21):
So stay with me today. This is not a scary episode. This is your taking
control episode. We're going to be talking about the stuff that's the difference between
feeling on top of your business and feeling like something
nasty might land on the doormat at any moment. Joining
me is someone I trust implicitly with my own business. She even has access to
the bank account. So I'm welcoming Rachel Parker. Rachel
(00:43):
has done my personal tax, vat, company tax bookkeeping,
and keeping me sane as much as anybody possibly can for quite some time.
And she's the person I go to when I make decisions as well that involves
spending money, risk or, or growth. So that's the lady that I turn to
to say, can we afford to do this? Am I in the right financial
position? Would it be better to be paying up front or should I be paying
(01:05):
monthly? How is this going to affect my cash flow? And she's the one that
keeps me solvent and as I says, keep me sane.
Owns the flow. So, Rachel,
(01:26):
thank you for being here. And I should also add, I know you don't do
podcasts and as I do more regularly, so we're going to
keep this very real and human. Hi. Thank you,
Clare. And yes, I promise I'm much more comfortable
talking to my spreadsheets and to a microphone, but hopefully this will be
helpful to anybody that listens. And that's the point, because it's all
(01:48):
about the practicalities, helping inform listeners, helping people
take away some of the stress that they feel over their tax and their accounting.
And it's not about performance. We don't have to be polished, we just have to
be honest. We're going to start with
something that a lot of businesses that I've dealt with through, certainly the local
authority contracts I work on come to me about. And it's how should they
(02:10):
be structured, whether they should be a sole
trader, Partnership limited or a cic.
And I find that a lot of people actually don't understand how
big of a decision that is, but also they think they can't change it in
the future. So why does this decision of the immediate
structure matter so much? Well, the thing is, and I
(02:32):
come across this quite A lot people don't seem to realize that your
structure affects how you're taxed, what you are
personally liable for and what records you need to
legally keep. It also has a bearing on
what you need to report, when it needs to be reported, and
why. As a sole trader, you're taxed, for
(02:53):
example, through your personal income, so you're personally responsible
also for any debts. But a limited company
is a separate legal entity, which opens up different tax
planning options, but it also brings added compliance
and sometimes people don't realise the differences. And I think this is
where a lot of people trip up, because I've certainly seen businesses who've
(03:15):
stayed being a sole trader perhaps for too long because they
thought it was simpler. Or they rush into setting up a
limited company or a CIC community interest company,
thinking it automatically saves tax. And of course it doesn't. And then they
also have to think about whether or not they're VAT registered. I mean, obviously there
comes a point where you have no choice, but these are all those
(03:37):
big decisions that actually affect how much it costs you to manage
your admin. Exactly. And I mean, there's no ideal or best
structure. There's only the right structure for where
you are now and where you're heading comes back to like what you've just said
with the vat. I know people that have rushed straight in, registered
themselves for VAT and now they're in a position where they don't
(04:00):
quite know what to do because they perhaps shouldn't have done it at this
stage. And people sometimes do that as well when they're setting up
their business, they're rushing, perhaps they know I just want
to be a sole trader and that's it. Whereas they would actually be better to
be limited. And I think that's really important. I mean, I set up my company
some shocking 23 years ago, makes me feel very old,
(04:22):
but because I knew the kind of clients I was going to work with
would expect me to look bigger than I perhaps was.
So I immediately created a limited company. I immediately registered
for vat and of course with that I had to make
sure that to service those kind of clients I had insurance policies and so on.
But had I had the clients then that
(04:44):
I often have now, perhaps being registered for VAT
just makes me more expensive because some of my clients aren't
VAT registered and they can't claim that back and I have to add it to
my billing. And I think people often don't go back
and revisit things because they think
that they're sort of stuck where they set up to be. This is one of
(05:06):
the things that people need to understand. They're not stuck.
So even if they've set up a structure, it can be changed.
It's not perfect and there is a process that needs to be followed and it's
always easier and better to do it from the start if you plan it out
in advance, but you can change it. So if you
realise that the structure you're in now isn't working for you, especially
(05:29):
at the point of going into making Tax Digital, now is a good time
to get it changed. Also, I'm going to go a little bit off piste here
because I know people who also operate as both a limited
company, because of course it's a separate legal entity, and as a sole
trader, because that works better for their different client base.
I've always thought that sounded a bit dodgy. Is that legal?
(05:51):
It is. It is actually legal, but it's all to do with how they
take their earnings from the business.
Interesting. There are different ways around how it has to be
done. Certain procedures that need to be put in place to A, protect the
person as a sole trader and B, protect the company.
Oh, that's very interesting. Now, I'm going to take that one away and talk to
(06:12):
you about that offline later. Then you've touched
on making Tax Digital. I mean, what does it even
mean? Because I'm seeing so many
colleagues, companies that I work with, they're going a bit
apoplectic over it and they're thinking that it's the end of the world, it's going
to cost them a fortune and they don't know where to start. So can you
(06:33):
tell people what it really means and sort of demystify
it and make it less scary? People are petrified.
Honestly, they are petrified. I've seen people rushing in, buying
really expensive software, going into a meltdown over it, and
there's no need. I'll say this now, take a deep breath in,
relax. It's okay. It's not that scary.
(06:56):
It's basically, in one sense, it makes things
easier because everything's becoming digital. Yes,
you still need to keep records and bits and pieces, but it's actually
easier to keep them digitally than what it is. Reams and reams and reams
of paper. The only thing with this is that
a lot of people, and I know I've come across people still doing it, A
(07:19):
lot of people, myself included, love their spreadsheets. I'm a spreadsheet
freak. I love Them spreadsheet nerds are us.
Honestly, I was scared too, I'm not going to lie.
But you can still keep your spreadsheets, but it's to do with how you report
that information to hmrc. The one thing that is
really important though is that you do need to have
(07:41):
compliance software. This is where the Making Tax Digital part
comes in, because everything from this point forward
is submitted to HMRC digitally.
So you have to have the right software to do this. But there's free
tools out there as well as paid for ones, aren't there? I mean, HMRC haven't
been that cruel. I remember when we ran payroll,
(08:03):
HMRC had a free payroll platform. So I'm
assuming there are simple and effective tools that you can upload your
data to that don't have to cost the earth. Absolutely. And
HMRC actually do have a full list. If you actually go onto their
website and do a search in their website for Making Tax Digital,
they will give you a full list of software providers
(08:25):
that they approve and therefore that will link directly to
the HMRC format, which will make the
process so much simpler. And at best you can either
go for a very, very limited paid for version or you can
get by on the free version. If you are more like a sole
trader, it's when it becomes more complex that you perhaps might need
(08:48):
to pay, because if you're reporting VAT and other things on top,
you would need a slightly more integrated
platform. Yeah, but then again, I mean, a business has to
incur certain amounts of costs for its business management.
And it's all very well and good to try and do everything on the cheap,
but sometimes it's worth paying that little bit extra. But I can imagine, I can
(09:09):
see people now gripping their spreadsheets with sweaty
palms and I can see them panicking about this. So what
do they need to remember that perhaps
is causing all this stress and anxiety about making Tax Digital?
The main part behind it all, it's to ensure accuracy and
consistency. If your bookkeeping is not up to date, it can become
(09:32):
stressful really quickly. Things can get lost, things can be really
reported incorrectly and we all know what that can lead to.
Issues with HMRC and big fat fines, and nobody wants that.
Making Tax Digital makes the process simpler and actually puts you
at less risk of falling behind on things and
maybe having issues that you don't need. And of
(09:55):
course I remember years ago I attended a presentation by the Federation of Small
Businesses and they said if you're a serial offender of not reporting
things on time or you've had a couple of fines, you're much more likely to
have a full on inspection. And of course they were trying to sell membership because
they protect their members against fines and so on and
inspections. But a lot of people, they're just
(10:17):
busy, they're not being careless, they're not trying to avoid paying what they're
due to pay, they're just busy and they fall behind because perhaps
they've not got the right support. Yes, but this is
where late and incorrect submissions can lead to automatic penalties.
With the making tax digital, it's easier to keep your records up to date all
year round and it's what helps to keep you
(10:39):
safe. One of the biggest things in
the news at the moment, particularly for retail, hospitality, leisure
and small businesses, is the true cost of people. And
of course customer facing businesses, particularly in high streets rather than
e commerce based, have to live and die by the people that they
employ. But with the cost of payroll now,
(11:01):
pensions rises to minimum wage, national insurance contributions,
depending on the number of employees you've got, it probably feels like a
minefield to a lot of people. And the true cost of staffing
really is causing a lot of distress in the high street.
The biggest mistake that people make is underestimating the true cost
of actually employing someone. So yes, how much you're
(11:24):
going to pay them per hour, per day or whatever is quite important, but that's
only one part of it. You've got your national insurance, you've got
your pensions, you've got holiday pay, you've got statutory
obligations which, as we know, as of April, these are changing.
So for example, sick pay, there's no longer going to be a waiting
period. So you could employ someone on the Monday and on the Tuesday they could
(11:46):
go off sick and you have to pay them immediately. There's no
minimum obligation there either. So you can't say, oh well, this person only does
six hours, so I don't have to pay them. They're entitled the same as the
person that does 40 hours as of April. So
it's not just thinking, oh, can I afford to pay someone
minimum wage for 20 hours a week? There's so much more on top.
(12:08):
And then ultimately there's the cost of it all that you have to pay
for PAYE to hmrc. So I didn't even know that
about the changes in April. So I again, I would
imagine that quite a lot of people who are being busy
running their business, doing what they do, serving their clients don't have
an entirely full picture of what's coming and of course, for
(12:30):
employees as well, there's been changes to what you can put into your
additional voluntary contributions if you're lucky enough to enjoy a high
salary. The last couple of budgets have really
changed the way that people consider employment
and earning, and it's a real problem, and it all takes a lot
of time. So, you know, the other thing, a lot
(12:53):
of people are looking to more outsourcing. So instead
of taking on an employee, people have portfolios of
clients and they could be, you know, the fractional job,
the fractional chief finance officer, the fractional marketing
officer, who might do a day, a month for a small business.
And so this is something I know you help me all the time. When I'm
(13:15):
looking at the outsourcing cost or bringing somebody in on a
retainer, we look at the affordability properly.
Properly with the cash flow, the profit impact and the risk, isn't it?
Yes. I mean, we have to look at whether the business can sustain the cost,
not just now, but over a long period of time. You know,
you have to determine how often you need that person to come in and do
(13:36):
that work. Can you sustain that amount, or would you be better employing
someone? You have to weigh out the cost between, you know, having someone
as an employee and how much it costs to pay that person for X
number of hours per day, per week. I mean, it's, it's such a
huge thing, especially for small business owners. And I'm seeing more and more
owners who are letting people go or
(13:59):
reducing hours because the cost of employing has
become so much higher in the last couple of years. And it's not just that
case. Is it about, can I afford it this month? Is it's like, can
I carry on with this, this decision safely, and if so,
for how long? And also, where is my break point?
If my revenue drops below X, do I now need to
(14:21):
reconsider the engagement of whoever it is that I'm
using, whether on an outsourced or unemployed basis? And it's a genuine
problem. And that's why the high streets are really struggling right now.
Yeah, I mean, you have to look at it, you have to look at the
cost and you have to determine, can I afford to do this? And sometimes
the answer is flat out no. It might be no right now, it might be
(14:43):
okay in six months. But you have to make that decision and
you have to make it quickly so that you don't fall into that
trap without being able to understand what all of
the costs are and then realizing you're struggling to pay those Costs.
And I think that's the big thing. A lot of people, they don't actually understand
how to look at the business information, you know, the
(15:06):
margin data, sales data, profit data, the seasonality,
the ups and downs. So they might make a decision this week
because it looks like there's enough money in the bank and they forget they've got
a massive VAT bill or a corporation tax bill coming. And then they're in trouble
because they haven't planned ahead. And I think that's
where people like yourself and you know, financial professionals
(15:28):
really come into the mix. Because if you're busy running a business, the last thing
you need to be doing is sitting analyzing the beloved spreadsheet.
Forecasting is so valuable, it really is. And people
don't realise a lot of people are focused on the now and not what
comes next. Yeah, and I think that you can't underestimate
that because I've seen businesses, I mean, I worked with Woolworths just before they
(15:49):
collapsed and they were in a solid position, but because they'd got
so much money tied up in dead stock, they collapsed and they
also lost their credit insurance. So businesses die on cash flow, not. Not
on profitability. Which leads us into
talking about the deadlines because that comes into
all of the reporting. What do you need to know when
(16:12):
filing and why monthly is really important? I know
it's not very sexy, but it is that thing that keeps
businesses alive. Yeah. And one thing that I really do
need to state, deadlines are non negotiable. You cannot move them.
You know, once you've set your accounts and everything up, if you are set by
the monthly or VAT or quarterly, you
(16:34):
cannot change that. That's set in stone. And you have to make sure
that you get things done at that point. Because
your vat, paye, corporation tax, all your
annual accounts, if you miss any of them, it leads to penalties
and they're automatic. You can't just go, oh well, I'll leave it for a week.
You get flagged, you do get flagged. If you get like a
(16:57):
couple of penalties, even if it's just a genuine innocent mistake,
you're putting yourself more at risk of getting further penalties
and more investigations, which actually takes a lot of
time. So much as it may seem something like everybody wants to put
down the priority list. Doing it monthly is where
calmness lives and where not losing money over
(17:20):
penalties and panic lives as well. Because last minute
sounds like an absolute disaster. Yeah, exactly. I
mean, your best bet is to review everything monthly because you can
Pick things up. You can spot mistakes, you can spot if something's
missing. You know, if you're looking at statements and things, you can see that
something doesn't reconcile. So you can find out why it doesn't reconcile.
(17:42):
You can make sure that everything makes sense and nothing's then a surprise.
You're not going to try and submit a VAT return and find out that
you've not been compliant. Your records are all there.
Do you remember when we first met and I was absolutely befuddled
about what on earth was going on with my accounts? My bank recs didn't
work, I couldn't get to the bottom of it. And the person who
(18:04):
had been looking after things before you had created a few errors
and reported things in the wrong direction. So
I was like, what's going on? And there was double reporting and all
sorts of mistakes. And I guess because I was too
hands off and I trusted this person because they were really very
highly qualified, those historical issues never really came to
(18:27):
my attention until that person left and
I realized that something was wrong. And you managed to
go through it with a fine tooth comb. And we found all kinds of
stuff that I thought something must be wrong, but I never really
understood why. But the numbers never quite stacked up. That is
my personal example of when
(18:49):
you're a bit too hands off. So even if a business out there is working
with an accountant or a bookkeeper or anyone who does financial admin,
they also need to make sure they personally understand what's going
on, because if they don't, it can turn into quite a mess.
And obviously that data is fundamental to knowing
and having the confidence in making your business decisions as well. And
(19:12):
there's a lot of people out there that are very hands
off. And I get why a lot of people are hands off. You know,
you were so busy, it's. Not their thing, is it? No. But you were also
so busy with everything. And we've got to go back to the times of COVID
Got to bear in mind that a lot of stuff had been done remotely because
of the restrictions around Covid. As you know, it took
(19:34):
me a long time to sort that data out and even then,
when we thought we were sorted, I came to do. I believe it was the
year end. Yeah, something very fundamental.
And again, something was wrong. So I had to go back all the way back
through the data to find out what was wrong because
we were keeping track of everything at that point.
(19:56):
It was a case of tracking down what that dispute was in the
data to correct it. And because we didn't wait till the very end
of the deadline before submission, it meant we had time to go through the data
comes back to that not leaving it till the last minute panic. And obviously now
everything's corrected and you know, I can run a report at any time and
you know, the figures that are in that report are correct.
(20:19):
And this is the bit I really want people to hear and understand,
because finance isn't just in compliance isn't just compliance. It's your
lifeblood. It's like the oxygen in the air that you breathe to
keep you alive. And if you're running a business, you need to
understand your finances in a much deeper way than
just meeting deadlines. Exactly.
(20:42):
Compliance is a bit that keeps you legal, it keeps you above,
you know, all those fines and all the scary investigations.
Strategy helps you to grow, but understanding
your numbers, what they mean, what they represent, helps
you to decide when to invest, how to price,
when to pause, and how to protect that really important cash
(21:05):
flow. And I think for a lot of businesses, that's where
they have the sort of empowering moment, that light bulb moment, a
confident shift and your numbers stop being a threat
and a compliance issue and they start being a tool.
Yeah, exactly. You're still making the decisions, but you're making them much
more informed. I always say on my LinkedIn profile that I am a
(21:28):
data driven decision maker. I am a bit of a numbers geek. Not to
your level, but I mean, finance is very much like what I used
to do in supply chain with the forecasting, the planning, capacity
management and all the logistics around it. And this is just
your. Basically it's your supply chain of money that makes sure
that you can pay yourself, pay your bills, pay your suppliers,
(21:51):
and deliver your customer experience to the best possible thing. So
hopefully anyone who's been listening to this is feeling maybe a
little bit more informed, a little bit lighter, a little bit more
confident. And I guess my
key takeaways from what you've told me, Rachel, correct me if I'm wrong,
but your business structure matters more than you think. And if you
(22:13):
need to revisit it, do it. It's not set in stone. So
if you started off as sole trader and want to be limited or vice versa,
just take a look, get some advice. Then number two,
I'm scared by it, but you're making me feel a lot better. Making tax
digital isn't scary, but you do need to be organized and you need to be
organized pretty much now. People cost money more
(22:36):
than salaries. So plan properly, consider Outsourcing
versus employment, fractional support, people on
retainers and so on, because they're next to things like your
property and your product, probably your biggest cost.
Having monthly routines is better than last
minute panic. And the most important thing for
(22:58):
me, because I'm. I guess you do all the financial accounts and
whatnot, but you're capable in management accounts. I'm much more towards
management accounts and commercial decision making. So I'm
very much the strongest advocate of using your numbers to support your
decisions. And if your numbers don't stack up, do something
else. So, Rachel, thank you. I hope everyone who's
(23:20):
listened has got a lot out of this. Thank you so much for your time
today. No, thank you, Claire. And I hope people feel
reassured that support doesn't have to be complicated or intimidating.
And I promise making Tax Digital is not scary.
Well, that's the message, isn't it? And also for people who are trying to do
this alone, you don't have to do do this alone. With right systems, the
(23:43):
right people, the right advice, it's manageable, even
hopefully empowering. So if this episode's helped you,
please do share it with someone who's quietly stressing about tax payroll or making
tax digital. I'm Claire Bailey. I've been joined by Rachel
Parker and this has been Retail Reckoning.
(24:04):
Retail Reckoning. No space for
dusty shelves.
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