Is awareness of Making Tax Digital still insufficient among small businesses?

11th January 2019

making tax digital awareness

Thousands of small businesses last month received a letter from HMRC, reminding them of the first phase launch of Making Tax Digital, taking effect on 1st April 2019.

Any firm required to pay VAT due to being over the £85,000 threshold will be required to submit and store its accounts using HMRC-compatible software, thus allowing the automated transfer of financial data.

The government has been criticised for ineffective communication regarding the project to smaller businesses, with many viewing this letter as too little too late. A recent report from the House of Lords economic affairs committee has just shown that as many as 40% of businesses know nothing of Making Tax Digital.

In this update, we clarify some of the less well-known points related to MTD.

Hidden Costs

Initially HMRC committed to sourcing a provider prepared to offer a free package, however this pledge has been replaced with a more recent communication stating it believes that the average cost of finding a system will cost firms £70. The Chartered Institute of Accountants has disputed this figure, expressing that, once training and set-up costs had been factored in, the total would be closer to £1,250. The Federation of Small Businesses estimates the cost even higher at £2,770.

Process changes for VAT

A change that many businesses are unaware of is that the current online system for filing VAT returns will cease to exist. The online portal will be phased out, to be replaced with the automated software-based VAT returns filing.

Will the launch be postponed?

Despite mounting pressure to delay the launch, businesses should not rely on this as deferring their own plans for MTD-readiness, as any delay would merely be temporary anyway. Given that current plans are to extend the project to include Corporation Tax and Income Tax returns, possibly as soon as April 2020, it makes sense to face it sooner rather than later, becoming accustomed to the process for different returns on a phased approach. There are some excellent providers such as Quickbooks and Xero that have worked extensively to prepare for the forthcoming change. Getting to grips with MTD now means businesses would benefit from avoiding the rush nearer to April, when support lines are likely to be much busier and harder to get hold of both at HMRC and the software providers.

What to do now

If you have received your letter last month then try to schedule some time over the next month to at least look at the options available. We have prepared useful guides to the different software and how we can help implement them for your business. Regardless of whether you have a large, legacy business or are just starting out as a freelancer, the transferral of accounts to a new digital software provider can all be handled by our expert teams, with no disruption to your accounts.

Chartered Accountants in Sunderland, offering expertise on everything from Tax and Business Planning,
to Accounts and VAT.