Half A Million Businesses Still File Outdated Physical Tax Returns

532,400 people still file physical Self Assessment tax returns, according to research which highlights the contrast in the technological ability of the public and business owners’ accounting methods.

With the deadline for submitting paper tax returns now less than two weeks away – midnight on 31st October 2021 – online accounting services practice, The Accountancy Partnership, has revealed there are still a considerable number of businesses and directors using outdated and traditional methods to track their annual finances and store related documents.

While 10,274,940 returns were filed online, 95.64% of total, according to HM Revenue & Customs, The Accountancy Partnership’s research found more than a third (37%) of entrepreneurs use paper-based systems or a collection of photos to keep track of their finances, while one in five (22%) are reliant on a digital spreadsheet.

Worryingly, one in 10 store essential documents in a drawer or shoe box, raising questions around security too.

Last month the government announced further delays to a key phase in its efforts to become one of the world’s most digitally advanced tax administrations, postponing the introduction of MTD for Income Tax Self Assessment (ITSA) from April 2023 to April 2024. The Making Tax Digital (MTD) reform will see business owners face penalties if they fail to meet their new obligations in the digital tax overhaul, giving those using traditional methods an ultimatum to make the change.

Encouragingly however, the majority – 63% – are already storing financial documents and expense receipts digitally, and 67% make use of accounting or bookkeeping software to manage their business expenses.

Lee Murphy, Managing Director at The Accountancy Partnership, said: “While the tax returns season is a busy period for all it can be difficult for those still using paper-based systems and physical returns to collect and store all the necessary documentation. We understand that not everyone is technological savvy, however using digital accounting methods, and saving digital copies of invoices and receipts, makes the process of filing a tax return much easier when the time comes.

"The effects of the pandemic are still being felt by society and businesses, and this set of accounts are likely to feature the use of government financial support adding further complexity to accounts. It’s therefore even more important that accounts are completed accurately and in good time.

“The security of sensitive business documents is also paramount, with physical documents more likely to get lost, damaged or accessed by third parties. A digital system allows parts of the system to be automated and multiple people in a business to update records at the same time to speed up accounting.”