Save time on your self assessment

1TapReceipts commissioned YouGov to find out how sole traders were impacted by self assessment tax returns. The 271 sole traders surveyed said self assessment tax returns take on average one working day per year to complete. Much of that day is reclaimable according to 1TapReceipts if the sole traders used technology such as theirs.

The filtering used by YouGov ensured that individuals who worked for a larger company were excluded from the results. This may have excluded some genuine sole traders. This year the UK government revealed that there are as many as 3.3 sole proprietors in the UK. The survey therefore has a significance about how many hours in total are wasted across the country. The survey covered 13 different industry sectors including manufacturing, retail, legal, education as well as leisure and hospitality.

Disappointingly the list did not include job functions such as taxi drivers, plumbers and electricians. This might have provided deeper insights into the sole traders viewpoint. The results of the survey were interesting in terms of hours spent on filling in the return. 45% spent five or more hours while 22% spend more than ten hours on their tax return. Without more detailed analysis an exact figure can’t be reached. With 1.89 million sole traders in the UK that is a significant figure.

Tax returns are a hugely manual process that sole traders cannot afford to get wrong. This is what makes them so time consuming, especially when correlating receipts from expenses to their income. As Michael Wood, Founder of Receipt Bank, the parent company for 1 Tap Receipts, commented; “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.”

The obvious pain point

Wood highlights the obvious pain point that 1TapReceipts looks to solve. 1TapReceipts is a receipt scanner that feeds data automatically into ReceiptBank. Using optical character recognition (OCR) it extracts the key data from a receipt. The data is then fed into the cloud-based bookkeeping solution. This will save a potentially enormous amount of time for sole traders. The survey showed most sole traders set aside a regular time to record the detail of their receipts. This time is also used for other financial management tasks related to their business. 17% see this as a daily task, 32% weekly and 27% monthly. This still leaves a quarter doing it less frequently. All of these could benefit from a great use of technology.

According to 1TapReceipts it takes a typical user under 10 minutes to scan 100 expenses with 1Tap. It claims that this is far less time that entering the data manually into a spreadsheet or accounting system. 1Tap were unable to say how much time could be saved. The justification for this being that every individual will have a different process, some better than others. What 1Tap and other expenses systems deliver is the ability to capture the data in the moment. Waiting until the end of the month might be slightly more efficient by doing the task in bulk but receipts fade and get damaged. What many of the respondents could do is use the convenient app daily in order to take the full benefit.

So should sole traders be considering such technology? The answer is yes, but not just for the sake of change. There is a new government initiative called Making Tax Digital that every small business needs to be aware of.

Will Making Tax Digital make a difference?

The survey also asked respondents what they knew about the Making Tax Digital (MTD) initiative. The vast majority of respondents were not aware that by 2020 small businesses will need to track their affairs digitally. In 2020 they will need to submit quarterly returns to HMRC. Data submitted will be nearer real-time and act almost like banking according to the government.

This could be a problem. 78% of respondents are not yet using any software to compile their costs and expenses. 63% are also doing the entire self assessment themselves with 55% admitting they don’t actually like the electronic self assessments process. This raises the question of how will they will cope with software that they have to interact with on a regular basis?

A more serious question is whether they will welcome the initiative by the government for more regular tax updates. Many will see this as an addition burden on small businesses. Will they now look to third party software to help complete the returns?. For many, the cost of using such software might be a barrier. However, it could help reduce the stress of filling in tax returns quarterly and the end of year tax return.

Wood seems to concur with this assessment saying: “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.”

Companies such as 1Tap do make life easier for Sole traders. They offer solutions at a cost that matches the value they deliver. Sole Traders should also consider accounting software such as Xero, Sage and Receipt Bank. These companies are already working with HMRC on MTD. Companies and sole traders using those accounting solutions should find their tax returns even easier than the are now. Some, “old fashioned” sole traders that really wont want to change. They will merely take advantage of the more frequent, less stressful opportunity to complete tax returns.

Conclusion

For existing customers already used to the digital landscape this survey reveals what they already knew. Wood concluded: “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.”

We didn’t ask but it might have been revealing if there was a correlation between the age bracket and the adoption of technology. Perhaps a future survey will reveal which generations are adopting the new technology. What sole traders can do now is adopt technology to save time on their self assessment. Tools such as 1TapReceipts will help with future tax returns. How frequently they are used is the choice of the sole trader though.