VAT registered businesses with an annual turnover above the VAT threshold (£85,000) will be required by law to use Making Tax Digital (MTD) to meet their VAT obligations from April 2019. This will entail setting up a digital tax account and filing quarterly returns online, using an accounting system or app that is integrated with the new digital gateway that HMRC is building.
The Federation of Small Businesses is among those who have raised concerns that that small and medium sized enterprises (SMEs) are not ready to move tax compliance online and are having to consider uncertainties around Brexit too. In September, the ICAEW claimed that 40% of affected businesses were unaware of the change.
The government’s latest response to these concerns comes via comments from business minister Kelly Tolhurst, who has told small businesses that there will be no further delays to MTD. According to The Times, Ms Tolhurst said:
“We’re making sure the communication is there so small businesses know exactly what they’ve got to do. Digitalisation is the way to go. It’s all about making it easier for business, but it’s rightly down to us to sell it to businesses and make sure they understand what the benefits are.”
In line with the ICAEW’s statistic, we would agree that businesses are not ready for MTD yet. Similar to the introduction of GDPR earlier this year, many have been sticking their heads in the sand, perhaps hoping MTD would go away. We’ve seen a lot of businesses making enquiries about MTD later rather than sooner.
As Kelly Tolhurst said, there has been plenty of communication about MTD. However, HMRC has not helped matters: the pilot programme that it started in April 2018 was limited to a small number of software providers and therefore businesses have not been able to easily find a solution and start preparing for the transfer.
HMRC seems to think that all businesses will need to do is switch to the new gateway when it is opened up. But for many businesses, this means a total change in processes and how they keep their accounting records. Cloud based accountancy packages such as Xero have been working closely with HMRC, but even they have faced difficulties in testing more complex scenarios.
The current eligibility criteria for businesses to join the pilot exclude businesses that have been late with recent returns, those that have VAT payments outstanding, those that are in a refund position or trade with the EU. Partnerships or groups of companies that file monthly returns are also not eligible and neither are any complex businesses. Among our own clients, there were remarkably few left that we could sign up to the pilot.
There is a lot of work to be done over the next six months: for HMRC, for businesses and for the accountants that support them. We have long been in favour of digital record keeping and welcome the MTD initiative, but we remain concerned about the start date of April 2019.
Delays or not, we are committed to helping our clients prepare their businesses for MTD. If you would like to discuss your options, please get in touch with your usual BKL contact or use our enquiry form.