Are SMEs Ready For Making Tax Digital?
3 May 2017
One of the most significant changes that HMRC have made in recent history, is the implementation of Making Tax Digital. The non-ministerial department have decreed that the majority of businesses in the UK to maintain their business records digitally and to report information quarterly from April 2018.
This means that there is just twelve months to go before such a massive upheaval to the way taxation and accounting records are stored and updated – despite the fact that there is little draft legislation available.
Making Tax Digital was previously announced as part of the Spring 2015 budget and intends to transfer tax records to digital software and update HMRC quarterly, rather than once a year. The scheme was designed to reduce human error and large scale tax avoidance.
Under MTD, unincorporated businesses, smaller companies and landlords will be required to supply up-to-date financial information online to HMRC at least every three months – as opposed to the current requirement of once per year.
Many small business owners are concerned that they do not possess detailed enough knowledge of tax law to be comfortable to perform this reporting internally. There is also the fear that automation - no actual human being to guide you through your tax return – could result in several mistakes which could prove extremely costly for the business in question.
While tax practitioners are already embracing new technology, and are aware of the benefits associated with maintaining business records in a digital form, there is a concern that HMRC has not considered the impact on small businesses and has set an unrealistic timeframe for compliance.
The Chancellor, Phillip Hammond, has assured small business and landlords who fall under the VAT threshold that they will have an extra year to prepare for digital migration. Free software will be made available for businesses that have a turnover below the VAT threshold, have no employees or use the cash basis.
HMRC estimates that there will be an initial implementation cost of £280 (on average) for the first year, but a small saving thereafter.
Fears about the implementation of MTD have been highlighted by the UK 200 Group – a membership association of independent chartered accountancy and law firms. It published a survey detailing that 65% of its members SME business clients do not use any software at all to manage their accounts at the present moment. The survey revealed that only 35% of those clients currently use the appropriate software.
This could mean that the April 2018 will fall flat in its overly ambitious plans. Both the government and HMRC are hopeful that this move towards digital will streamline existing services and speed up the process of tax returns.
It is further hoped that the system will not lead to any redundancies within the Accountancy and Finance sector – rather that current employees will simply need to readjust their skillsets.
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Written By Fiona Ashcroft