Preparing Small Businesses for Making Tax Digital With ANNA Money

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[00:00:26] What if finding the receipts and decoding HMRC expectations is stealing your time from serving customers and doing what you do best? Well, my guest today is the Head of Business Admin at ANNA Money. Hopefully, we're going to try and make sense of making tax digital.

[00:00:51] Because ANNA Money, which stands for Absolutely No Nonsense Admin, is an AI-powered app-based business account and financial admin service designed for small businesses, startups, freelancers and sole traders here in the UK. And my guest will explain today why quarterly updates are different from tax returns. I also want to dig into why many business owners leave admin until after 5pm on deadline day,

[00:01:21] and how AI can categorise the same tyre purchase differently for a mechanic and a parts dealer. Yeah, we've got a lot to get through today. And if we've got time, we'll also discuss why software should do work for business owners, rather than creating yet another dashboard to babysit. So, if your bookkeeping system currently resembles a shoebox with Wi-Fi,

[00:01:46] hopefully today's conversation could save you time, stress and a few very long nights. But enough from me. Let me introduce you to my guest now. So, thank you for joining me on the podcast today. Can you just tell everyone listening a little about who you are and what you do? So, my name is Caroline. Thank you so much for having me. I work at ANNA Money as the head of business admin, and I look after ANNA's accounting and tax product.

[00:02:14] Excellent. Well, thank you for sitting down with me today. And as we're recording this, we're just days away from the first Making Tax Digital quarterly deadline. And for anybody that's unfamiliar with this, it is a big deal. But what exactly is Making Tax Digital and why has it been introduced? Well, this is a large initiative by the HMRC. It's the first one in many years, actually, for personal income tax,

[00:02:41] where people now have to report four times a year on their self-employment and landlord income, rather than having just one self-assessment filing at the end of the year. So, you have four reports plus the final assessment at the end of the year as well. Main reason for that is obviously the tax gap, right? A lot of submissions or the underpayment of tax didn't actually happen because people were trying to scam the HMRC.

[00:03:10] It's actually because it's a long time between the end of the tax year, which is like in April, and the filing deadline, which is end of January. So, in those nine months, most people don't file. You always see a rush at the end of January, and then it's a scramble for receipts, usually stored in a shoebox somewhere, trying to put everything together at the last hour, and that's when mistakes are made. So, with Making Tax Digital, essentially what HMRC is doing is teaching everyone a better way of doing things,

[00:03:39] that is, staying on top of their incoming and outgoing throughout the year, and reporting that to HMRC throughout. And it's important to know that this is not actually a tax filing. It's just an update that you report to HMRC and saying, like, this is how it's going. And it doesn't cover all of your income. It only covers your self-employment and your landlord activity. And it's currently in place for qualifying income over $50,000 per year across those activities.

[00:04:06] And we'll go down next year to $30,000 and then to $20,000. Wow. And for our overseas listeners, this is one of the biggest changes to UK tax administration in many years. So, how do you think small businesses are going to adapt, and where are they still finding it challenging? I would imagine many small businesses that don't have the luxury of large cash flow, etc., are suddenly going to stop feeling a little additional pressure. Is that right? Yeah, absolutely.

[00:04:34] And it's also shown in the numbers, right? So, estimated 864,000 people are obliged to file MTD in this first year. And a little bit less than half so far have signed up for it. There's a bit of a soft landing by the HMRC where in the first year, there won't be any penalty points for late filings. So, if you miss a quarterly update, it's not the end of the world. But still, the awareness is very low. People don't know what MTD is. They don't know what they have to do.

[00:05:04] They are not even aware that it applies to them. So, it's a bit of a slow burn. And it changes a lot for people, especially the ones that have done everything manual, and they still have those shoeboxes somewhere and tend to do their self-assessment at the end of the year, like just once and done. If you already use accounting software or you have digitized records, it's a little bit easier because everything you do is kind of like give an update of what's already there.

[00:05:31] But especially for the people that are still relying on pen and paper, Excel spreadsheets, and receipts, that's a big change and a huge admin burden as well. And AI is becoming a much bigger part of how businesses manage their finances. So, how are you seeing technology change the way that entrepreneurs and business owners approach bookkeeping, tax, and business admin? Any big changes you're seeing here? Yeah, absolutely.

[00:05:59] I think that's kind of our mantra at Anna. Like, Anna actually stands for absolutely no-nonsense admin. We are trying to help our customers to do less financial admin, less day-to-day paperwork and so on by the use of AI. And I think the main shift is that instead of going to accounting software and doing something in your accounting software, your accounting software actually does things for you.

[00:06:26] And you need to understand less about bookkeeping and accounting to be able to have complete and tidy books overall. And the key change is here that AI is just helping us to set up smarter rules. There's always been rules in accounting softwares, but now AI can take the full context of your business to make decisions about what an expense should be, where it should be allocated. Very simple example is, for example,

[00:06:55] if you buy a tire for your car, this could be vehicle maintenance for someone. But if you're actually a spare parts car dealer, then this is inventory. So it's the same transaction, the same merchant possibly, but just based on the context of your business, it's becoming a very different category. And so AI can differentiate between those things and take more information about you into account

[00:07:24] and categorize correctly. And anyone that looks down their newsfeed recently will find that there's so many big talking points around AI replacing jobs, a lot of concern and fear there. But in the context of smaller businesses, where do you think it can have the biggest positive impact? Because I think this is something we don't shout about enough. I think that it will lower the barrier of entry for small businesses

[00:07:52] because it is very scary to set up a company, but then having all of these compliance rules, having to do your books, your bookkeeping, your accounting, various deadlines, and all of this can be taken away. It is also, of course, quite a bit cheaper rather than hiring an accountant necessarily, especially when you're just starting up and you want to get going with your business and don't want to think about taxes yet. That's a great solution just to make sure that you're set up properly from the beginning.

[00:08:21] And then later on, when things are getting a little bit more complicated, you can seek external advice. I don't think AI... What I often say is, AI won't take your job, but someone who uses AI will. So, I think that's the key thing here. It helps young businesses and entrepreneurs to get going with something, get started without having the huge headache of another expense or not knowing how to do something very simple

[00:08:51] like bookkeeping and just crack on with their business, knowing that everything is done accurately and in place so later on, they don't wake up to messy books. So, it's something we see often. People start a business. First thing they do, they incorporate their company. Second thing they do, they get a business account and then taxes and accounting comes way later. They're like, why do I need accounting now? Like, I don't have any transactions. It's all very easy. And then,

[00:09:19] as soon as things start to pick up, they're getting too busy to actually think about it and that's when you end up with a mess of like receipts and transactions going all over the place. And then they try to set up accounting software and it's actually not easy. It's not like you connect your bank account and everything falls into place because traditional accounting software is often designed for accountants rather than for small business owners. So, what we are trying to achieve is a place where everything

[00:09:48] is in the right place from the beginning, where it helps you from day one keeping your transactions and your books organized and tidy. So, when it comes to tax filing season, it's not scary. It's not a headache. It's not a last minute rush. You just know you're set up right. And before you came on the podcast and I was doing a little research on all things Anna Money and one of the things that I came across is you've recently announced the acquisition of Business Data Group

[00:10:17] and UK Business Forum. So, tell me more about that and the kind of opportunities this creates for supporting entrepreneurs right from the very start of their business journey. Yeah, that's a really exciting and great acquisition for us. Business Data Group is a company formations business that cover around 30% of UK independent formations market and it goes back to what I just mentioned that, you know, people set up their business and they don't think about accounting and tax yet

[00:10:46] and we are with them from the start or can be with them from the start helping them getting set up right from day one and take them on that journey and allow them to focus on the things that matter the most and that's growing the business like getting it off the ground, getting sales, getting set up and leaving everything else to Anna to be sorted out in the background without much admin or hassle to set up. And UK Business Forums, again, it's a community of 160,000

[00:11:15] small business owners. It's a fantastic resource. we're looking into how we can bring this wealth of information and support to Anna customers as well as understanding how Anna can help UK Business Forum grow and support their members. So that's an exciting project and we're working very closely with key representatives of the community to understand how we can be helpful. And one of the things I wanted to bring up today when I was doing that research

[00:11:45] is I came across your latest data which shows that more than half of VAT returns submitted on deadline are filed after 5pm with over a quarter not arriving until after 9pm. What does this tell you about the reality of running a small business today? It feels like everything's left to the last minute almost. Yeah, I wouldn't say that this is evidence of business owners slacking or procrastinating. I think it's just something that they need to, they have to do

[00:12:14] but it's not really part of their day-to-day business. It's a chore, it's something that comes with running a business but it's not their main business. So again, this is like if AI was to take that job away from them it wouldn't actually replace their job because their main job is to run the business. It would take away something that they would usually do in their spare time or at the end of the day when all the important things have been done.

[00:12:43] And your early making tax digital data also suggests that we're already seeing the same pattern emerge there. So were you surprised by that or does it reflect what you're seeing from customers more broadly? What are you seeing here? What did you take away from that? Well, we were expecting that. I mean, we've had MTD for VAT early on. We were supporting customers with their MTD for VAT

[00:13:13] so we knew the pattern and I don't think it, I wouldn't have expected it to be much different. It's first of all the novelty effect. It's new and it's scary so people do kind of like push it off a little bit and then again it's just something that needs to be done. It's not part of the core business. It's something you have to do at the end of the day so you leave it until there's nothing else important left to do until you commit yourself to actually having a look at this.

[00:13:43] But I think once people understand or have done it once it will become easier and once people realize that switching to a digital solution is probably appropriate here it will make their life a lot easier then it literally becomes just a few clicks to submit this update on a regular basis. And again because it's not a tax filing it is just an update you send it doesn't have to be perfect so it's cumulative as well so you don't need to even make any revisions on your next update

[00:14:12] it just kind of like corrects itself almost. Yeah like you said a few moments ago we're not accusing anyone of procrastination here it's almost a sign that business owners are fitting more and more admin around everything else that they need to do and they didn't get into business for bookkeeping and governance deadlines and all that kind of stuff so technology can be a big help here can't it? No absolutely and it's small business owners

[00:14:41] are at capacity like running a small business I set up my own company before and the amount of things there's it's not like you start a business and you have someone for everything you are the someone for everything and that's not only like marketing sales customer support and also bookkeeping accounting admin you're the secretary so it is more than one full-time job it's several so it's a huge

[00:15:11] change for sole traders in the UK it's a huge change for landlords as well it is an additional admin burden even if it is automated it's still something you have to think about and it's a change in the way you do things as well and that always is take some time some adjustment and obviously no one likes change right so yeah of course as more admin tasks can become automated of course as we look to the future

[00:15:40] and as this evolves how do you see the role of technology continuing to make life easier for small business owners and are we moving from software that just helps people complete a task to software that actually helps get some of that work done on their behalf how far away are we from that do you think I think we're there I think that is our daily bread and butter at Anna and kind of like understanding what can we do whilst you're away

[00:16:09] running your business and the important and the important aspect where do we need to ask you for something some additional information confirm something rather than just blindly doing something because that is a big issue but over time and the more you use it the more we know the context of your business see how you operate what people you contract with well your suppliers and your customers the easier

[00:16:39] it will be for us to make the right choices going forward so it's kind of like more of you're training your own assistant in doing something rather than having to do everything yourself and potentially transferring that knowledge into a junior bookkeeper at some point you're growing something along your business that helps doing things whilst you're away and giving you back more time not even I want to say more time to work but it seems like at the times that people are

[00:17:09] doing their admin it's more free time to do other things as well So for any business owners listening I'd love to give them a few actionable takeaways here especially if they're preparing for their first MTD deadline or just looking to spend less time on admin more time on their business any advice that you'd leave them with today definitely separate your business transactions and your personal transactions I think that is

[00:17:38] one key takeaway especially for MTD where if you have all of your business transactions in one place that will make it infinitely easier to do those quarterly updates because you don't actually have to read through the transactions understanding what is for business and what is for personal and start tracking early I know that HMSD took a soft approach for this year and they said that there will be no penalty points in this first year so a lot

[00:18:08] of people are like well it's not really serious yet but take it serious give it a go make sure you're set up so once this is getting serious and you are actually getting penalty points and penalties you don't get caught off guard fantastic advice and for anyone listening that would like to dig a little bit deeper on this find out more about Anna Money how you might be able to help them there lessen that load and also some of those resources from the recent acquisitions that we mentioned from business data group

[00:18:38] and UK business forums where can people listening get more information and find these resources that will help them well you can always check our website Anna money we have a fantastic blog with dozens of resources around MTD as well as on taxes and general guidance on what to do of course you can always create an Anna account even if you don't open a business account you can open an Anna account connect your business account

[00:19:08] and start having a look through your transactions see them fall into place and chat with our propriety auto accountant which is our AI accountant to help you stay on top of your books excellent well for people listening Anna money is a business account and tax app used by I think more than 50,000 UK small businesses sole traders and self employed workers so if anything we've spoke about today has resonated with you please go check that

[00:19:38] out but more than anything just thank you Caroline for talking about all this in a language everyone can chatting to you I think Caroline left us with two refreshingly practical steps today separate business and personal transactions and start tracking early and the good news is that neither of those things require a finance degree although both

[00:20:08] may prevent the annual ritual of asking whether a faded receipt was lunch fuel or something brought during a moment of entrepreneurial optimism but what really stood out to me was her point that small business owners are already the salesperson the marketer the customer support team bookkeeper and occasional office therapist and AI earns its place when it quietly removes chores while asking for human confirmation when judgement

[00:20:38] really matters and making tax digital could penalties enter the picture so again massive thank you to Caroline for explaining the change in plain English remember you can learn more about Anna Money its auto accountant and making tax digital resources over at Anna.Money but over to you which piece of your financial admin

[00:21:07] would you most happily hand over to a trusted digital assistant I'll be interested in your feedback on this one so techtalksnetwork.com send over your messages and I will get back to you but that's it for today so thank you for listening as always bye for now