Stress of VAT returns causing one third of small businesses to lose sleep
As the new VAT legislation deadline looms for over a million small businesses, new research from Intuit QuickBooks, the global technology platform, finds that the stress of VAT returns is having a negative impact on small business success and wellbeing, with many putting off getting compliant with new Making Tax Digital rules as result.
Most VAT-registered businesses must complete their return on a quarterly basis. On average, small business owners spend four hours a month worrying about their VAT returns, and for one in five (20%) this rises to at least 7 hours – the equivalent of a whole working day.
A fear of making errors is the biggest concern for small business owners when it comes to their VAT returns (44%), followed by the possibility of penalties (38%) – with business owners potentially facing fines of hundreds of pounds if they get their VAT return wrong.
Tax worries prevent small businesses from thriving
Time spent worrying about tax is preventing small businesses from reaching their full potential. Two in five (43%) small business owners say they could generate revenue more effectively if they weren’t spending time worrying about their VAT returns, while 41% say they could be more effectively growing their business.
Small business owners’ personal wellbeing is also being impacted by these worries. More than a third (36%) of those experiencing stress around VAT returns have felt overwhelmed, 33% have lost sleep and 29% have experienced exhaustion.
Small business owners putting off upcoming tax legislation
It’s human nature to delay things we find stressful, and tax returns are no different. The research suggests small business owners leave filing their VAT returns to the last minute, with 45% submitting just ahead of when it is due, while 16% wait until the very last minute or are late submitting.
Worryingly, small businesses are taking a similar approach to upcoming Making Tax Digital (MTD) legislation. From April 2022, VAT-registered businesses with a taxable turnover of less than £85,000 will be required to keep digital records and use software to submit their VAT returns. Despite this deadline being just five months away, QuickBooks’ research shows that among those not yet compliant, 41% are putting it off.
Digital switch can help alleviate tax stress
But going digital could help prevent the ongoing cycle of tax stress. In fact, the majority (58%) of small business owners agree that using digital software reduces or could reduce stress when filing VAT returns.
QuickBooks’s research found that the main benefits of using software to complete VAT returns are that it’s quicker (42% surveyed agree), more accurate (39%) and more efficient (38%) than using older methods like spreadsheets. It also makes it easier to keep up with regulatory changes (34%).
To help turn inertia into action and unlock the benefits of digital methods, QuickBooks has partnered with Bas Verplanken, Emeritus Professor of Social Psychology at the University of Bath. Verplanken has developed a guide for small businesses on creating and maintaining long-term habits that will not only make their regular VAT returns less stressful but get them MTD compliant ahead of the deadline.
Pauline Green, Head of Product Compliance & Programs at QuickBooks, says: “Tax returns are a necessary fact of life for most small businesses, but that doesn’t mean they are enjoyable. With many experiencing sleepless nights around filing their returns, it’s understandable that many are avoiding thinking about upcoming VAT legislation.
“But it doesn’t have to be this way. Using digital software for VAT can actually reduce stress by automating the process, therefore minimising the time spent, improving efficiency and ensuring returns are accurate. Software also provides real-time insights into finances, helping to build better habits and financial awareness.
“If they prioritise becoming MTD compliant, small businesses will start to experience these benefits and eliminate tax worries – allowing them to focus on building a successful business.”
Bas Verplanken, Professor of Social Psychology at the University of Bath, says: “Successful habits form when you frequently and regularly conduct a task and protect against forgetfulness, procrastination, and even fear by making your tasks part of your daily or weekly routines.”
“Building and adhering to these habits can minimise small businesses’ worries about their VAT returns and put them in full control of their business. Taking these steps will not only help them to adhere to the law, but also make them happier as a business owner.”