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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https://theretailchampion.co.uk

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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.

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

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

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,

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

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

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

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

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

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

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

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,

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

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

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

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?

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

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

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.

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

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

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,

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

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

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

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

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

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

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

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,

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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.

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.

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.

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

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

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,

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

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

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

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

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

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.

Retail Reckoning. No space for

dusty shelves.