Accounting for Dragons

Sarah Willingham

Sarah Willingham, BBC Dragon and serial entrepreneur partners Xero, the accounting cloud-based software platform to lead a campaign that highlights the challenges that SMEs are facing in getting on-board with HMRC’s Making Tax Digital ruling. Damon Anderson, Director, Partner, Xero EMEA joins Sarah in speaking to Zoya Malik, managing editor SME about how together they are guiding SMEs in solving account management issues and meeting compliance deadlines

With HMRC’s new VAT tax rules that spurred into effect its Making Tax Digital on 1st April 2019, this compulsory directive has brought pressure to bear on 1.1 million businesses, overwhelmed by regulation and limited by the lack of financial acumen to meet the target. New research* has found that two-thirds of British small firms admit to having less than one day’s corporate financial experience or business education prior to the launch of their business. This lack of financial know-how has caused growth to be “stunted”, as well as two-thirds of SMEs being hit by tax return fines totalling £1.3 billion.

Small businesses have nor the time nor relish accounting and are unused to investing in tech innovation to bolster their booking-keeping efforts.

So it seems getting business owners’ and employees’ buy-in has been one of the biggest challenges that even accounting firms must face in order to integrate Intelligent Accounting (IA).

Yet tech is changing the sector in many ways. HMRC has signed up Xero as a facilitator to the ‘Making Tax Digital’ programme, which is making businesses with a taxable turnover above the VAT threshold comply with HMRC’s demands to use certain software to submit their tax returns. This is a big shift for SME businesses, but one which must be embraced and made the most of.

Automation is also a way to get employees on board by showing them what benefits they can personally reap if the business adopts this new technology. People’s jobs will become less filled with individual manual tasks and far more focused on meaningful work.

Damon and Sarah talk about the strategic reasons behind their partnership and tackle the tough questions surrounding MTD.


Zoya: Sarah, which of your businesses has signed up to Xero?
The Craft Gin Club is one of my companies that uses Xero’s solutions.

Craft Gin Club is a subscription service for gin lovers. Every month, members receive a surprise Gin of the Month box through the post. Each box contains a full-sized bottle of very special craft gin – including brand new, one-off or specially imported spirits.

Jon Hulme and John Burke, business school friends who met while studying in Madrid, founded Craft Gin Club in January 2015 with the mission to reinvent the way gin lovers discover and enjoy new gins, all while supporting amazing craft producers.

In the summer of 2016, Jon and John appeared on BBC Dragons’ Den, attracting offers from four Dragons before winning my investment; I now work closely with the company as a member of its board.

Zoya: What tax problems is Xero currently solving for SMEs?
From April 1st 2019, the majority of UK businesses above the VAT threshold of £85k need to file their tax digitally using HMRC-compatible cloud accounting software, under new legislation called Making Tax Digital. This will initially affect 1.1 million UK SMBs. This legislation is designed to remedy costly filing errors and enable HMRC to digitally track individual invoices. It signals the UK’s aspirations for a digital Britain in which businesses can work together, from scalable, interactive cloud platforms.

Xero is an HMRC compatible accounting platform. This means that small businesses filing their tax through Xero can be confident their tax filing will be compliant. By using Xero, small businesses can keep track of when their VAT is due, calculate how much is owed and file their returns in real-time to HMRC. The new software will also allow users to continue using spreadsheets to calculate VAT and keep digital records.

Support for Making Tax Digital is available in all Xero plans that support VAT, at no extra cost. As well as ensuring compliance, Xero’s built-in new VAT functionalities save accountants and small businesses precious time.

Zoya: Sarah, what are your companies’ involvement with Xero?
Craft Gin Club is a Xero customer and therefore enjoys the full digital benefits of the platform which enables smarter accountancy through cloud computing. I am an ambassador for Xero’s most-recent Making Tax Digital campaign, looking at the confusion small businesses face when starting up, with 9 out of 10, approximately 4.9 million small business owners, admitting to feeling “overwhelmed” by regulation when starting their own business.

Damon Anderson, Director, partner, Xero

Zoya: Damon, why did Xero chose Sarah to be a brand ambassador?
A lot of companies Sarah works with, use Xero. Sarah is a fantastic entrepreneur and understands challenges small businesses face and together we have understood that in terms of accounting, SMEs are under-resourced. We also found that even prior to Xero, Sarah has been helping businesses navigate digital issues. Sarah has demonstrated via the Craft Gin Club how online software can reduce manual tax returns and has put her full commitment to reinforce the idea that businesses will need to use compliance software to get up to speed.

Zoya: What services does Xero offer SMEs in terms of tax knowledge and solutions?
Xero offers small businesses simple and affordable accounting software with the time-saving tools entrepreneurs need to grow their business. By keeping up-to-date digital records in real-time, businesses are less likely to lose receipts and less likely to make errors of the kind that have seen two-thirds of SMBs pay tax return fines totalling £1.3 billion.

Zoya: Sarah, what have been the learnings for your businesses as they grow?
As you scale up, it’s important to stay organised, and not be slowed down by administration. Entrepreneurs most want to innovate and think up new ways to better serve customers. The last thing a small business owner wants to do is get bogged down in tax, particularly when it’s going digital. Xero’s MTD functionality makes it quick and easy for businesses to file their tax online, meaning time can be spent on growing the business.

Zoya: What are the outdated processes for tax returns that due to legacy systems are incurring fines for SMEs?
These range from paper booking techniques going back to the 14th century to excel spreadsheets, and our latest research found that one-third of small businesses still write down expenses the old-fashioned way and keep receipts in a bag. No surprise then that two-thirds of SMEs we surveyed have been hit by tax return fines totalling £1.3 billion.

Zoya: What are SMEs’ current culture to meet tax regulatory deadlines? How prepared are they for meeting HMRC’s Making Tax Digital deadline?
We’ve found that entrepreneurs are often too busy, too poorly resourced or too inexperienced when starting out to understand the complexities of tax filing. We found that three-quarters of UK businesses (approximately 4.2 million) said that early growth was “stunted” from the sheer amount of time and expense it took to become business literate.

Our research also found that two-thirds (63 per cent) of small firms admitted to having less than one day’s corporate financial experience or business education prior to the launch of their business. Furthermore, more than three quarters (78 per cent) of small business owners had never submitted a tax return before starting up, with two thirds (66 per cent) admitting they’d been hit with tax return fines – with the most common fine being between £300 and £400. The repercussions can be even more severe, with 50,000 small businesses failing each year due to cash flow issues.

We also found a troubling lack of awareness of the implications of MTD for VAT. We surveyed 500 SMBs last year and found that at 38 per cent of SMBs are concerned about a lack of understanding of the legislation.

Zoya: How does Xero’s app pass / align with HMRC’s facilitator requirements?
Damon: Xero has worked closely with HMRC for over three years and has been recognised as Making Tax Digital ready in advance of the deadline. This new feature will be complimentary as part of any Xero subscription that supports VAT, at no extra cost.

Zoya: How does Xero’s accounting app differentiate over others in the market?
Damon: I think it’s on a multi-level; Xero allows businesses to operate faster whereby Xero can automatically handle tasks that used to take up time, for example importing bank transactions to sending invoice reminders; to feel confident in so far as data is now stored safely in one place enabling business tracking. Businesses can also invite accountants or bookkeepers into Xero so they’ll ensure the business meets tax obligations; to add more software meaning businesses can look after staff with Xero Payroll and drive project profitability with Xero Projects. It is all fully integrated with Xero to keep business information in one place. When using Xero, you can also take full advantage of a thriving ecosystem seamlessly integrating with 700+ apps; business owners can also do business from anywhere and from any device. i.e. it’s easy for a business to access Xero tools and their corporate data from anywhere via the internet, keeping essentials like invoicing and payroll at their fingertips.

Zoya: Sarah, why did you choose to work with Xero?
Xero is also a platform for small businesses and aims to help small businesses thrive. I have worked with Xero several times over the last few years and theirs’ is a great team and am enjoying working with them through their growth. I champion small businesses as does Xero, to help SMEs to problem solve and become more efficient.

The campaign is about highlighting a topic usually brushed under the carpet and has not been as newsworthy and with the HMRC’s deadline looming, it has seemed all the more important to focus SMEs with all the noise of Brexit, distracting businesses from getting on with their commitments.

So for the campaign we have done a lot of radio and press broadcasts in partnership with Xero, to highlight the fact that the change that HMRC requires for MTD is not very difficult, but of course that change is cumbersome, and there is a huge list on HMRC’s website on compliance and software and it’s not expensive. Even Xero’s is a more comprehensive package.

It means businesses will be forced to go digital and the platform will help everyone, particularly business owners who may not naturally be numbers focussed. The beauty of it means accounting on a piece of software everyone has access to.

Zoya: What is the investment for an SME to integrate with Xero’s systems?
We have different pricing structures to reflect the varying budgets our SME customers are operating under, and our subscriptions start at just £10 a month. Often the costs of the software is absorbed by the SMEs accountant.

Zoya: Does Xero provide SMEs in – house corporate training and user support?
Damon: We provide a lot of support to our small business subscribers, whether in the form of our platform Xero Central which harnesses the power of user behaviour to offer smarter advice, or through our education programme that includes hosting webinars.

Zoya: Sarah, what qualities do you possess to be a successful entrepreneur?
Sarah: I am resilient, eternally positive, and a realistic person and am quite self – propelled. It’s true that being an entrepreneur can be a lonely place, but I surround myself with people I really like and respect.

Zoya: What inspires you to stay creative in business?
Sarah: I am regularly inspired by people; I am amazed when watching my kids grow and get back up from any challenges. I have relished and learned a lot about creativity for example from my days at Pizza Express and how we created value. Recently, I was at The Prince’s Trust event and I was inspired yet again by the young kids who have created such phenomenal businesses. I am always open to inspiration.

*A survey of 500 SMEs was commissioned by Xero in March 2019