Half of small businesses in the UK are not yet ready for the Government’s Making Tax Digital (MTD) scheme, according to the Federation of Small Businesses (FSB). They’re urging the Government to underline its commitment to light-touch enforcement of the measures as research by the FSB shows 50% of small businesses cannot yet comply with the scheme, which will be enforced on 1 April 2019.
What is the Making Tax Digital scheme?
MTD is a major component of the Government’s plan to simplify the tax process for businesses and individuals. HMRC wants to become one of the most advanced tax administrative systems in the world, and digitising is a big part of this ambition.
The Government says that MTD will make tax administration more efficient, more effective and easier for people to get right. VAT-registered businesses with a turnover above the threshold must use the MTD service to submit their VAT returns from 1 April 2019, the start of the new financial year.
There are exceptions, including what the Government says is a “small minority” of VAT-registered businesses with complex needs. HMRC has committed to delaying the scheme for these specific customers until 1 October 2019. You can see more of the proposed timeline on its website.
Costs of compliance
However, the FSB says that 27% of small businesses have not yet even started to prepare for MTD. A further 23% (one in five) have sought quotes for the required software but haven’t yet bought access to any. A very small percentage (3%) say they are part of the pilot MTD scheme.
Some small businesses say that installing MTD-compliant software will cost an average amount of £564. Fees for software come as either one-off amounts or annual subscriptions for varying amounts.
The larger the business, the higher the expected costs. Businesses with a turnover of more than £500,001 and less than £1million will land a bill of around £872 for software. Businesses with a turnover of more than £1m will need to pay an average of £1,019.
Lack of understanding
While the Government maintains the system will make it easier for businesses to manage their tax, just 10% of firms believe that MTD will have a positive impact on their financial management. And around 36% say they think it will be negative.
The research also showcases how important offline accounting administrative methods are to small businesses. About 37% say they use paper invoices, and almost a third (29%) use bank statements and paper receipts to manage their finances. HMRC’s own research shows that 19% of small businesses, who must comply with MTD on 1 April, don’t know what it is, or what it will mean for them.
James Turner, Managing Director of Turner Little Limited says: “We are extremely close to the roll out of MTD by HMRC now, and small businesses are not prepared for it in many cases. Either way, small businesses should not be punished for a rushed roll-out. It’s clear that some are in danger of not being able to comply with MTD in time, or worse, have little understanding of what it will mean for them.
“The Government says that MTD compliance will be affordable for small businesses, but some are now finding that they must pay hundreds of pounds. We are experiencing some lower levels of confidence for small businesses at the moment, and with rates rising, extra costs such as this are not helpful.
“The FSB also finds that the registration process is far from simple, adding to confusion for small business owners. It would be helpful to see a review of the rollout and for the Government to commit to helping small businesses reach compliance. A guarantee that it won’t be forced upon businesses below the threshold for VAT for a significant time period would also be welcome.”
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.