The Association of Taxation Technicians (ATT) is calling for more to be done to help businesses prepare for the introduction of Making Tax Digital (MTD).
The call comes after a report which indicated that many small businesses and landlords remain unprepared for the start of MTD. The report was commissioned by HMRC from Ipsos MORI1 to help the tax authority understand the factors that influence the willingness of small businesses and landlords to transition into MTD.2
From April 2019 businesses above the VAT threshold will be mandated to keep their records digitally and provide quarterly updates to HMRC for VAT purposes.
The findings of the report have led the ATT to recommend that HMRC step up their publicity efforts and produce clear, practical guidance to ensure that all relevant businesses are ready for this change. While MTD will not be compulsory for income tax until April 2020 at the earliest, the ATT also recommends that the turnover threshold for that tax be confirmed soon, to remove uncertainty and encourage affected businesses to start their preparations.
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“This report highlights that, although the MTD proposals have been around for some time, there remains a large amount of work to do to get small and medium sized businesses up to speed.
“Lack of awareness of the MTD requirements remains a serious problem. At the time of the survey 60 per cent had not heard about either the digital record keeping or quarterly reporting requirements of MTD.”
A related and serious challenge illustrated by the report is the lack of readiness for the digital record keeping requirements of MTD. This is especially the case when it comes to businesses subject to income tax, such as individual landlords, sole traders and partners. Of these 19 per cent indicated they did all their record keeping at the year end and only 12 per cent used software.
Yvette Nunn said:
“We would encourage HMRC to step up their publicity efforts to ensure that all relevant businesses are ready. This should include providing more precise details of the MTD requirements and clear guidance on the practical steps needed. The report itself notes that ‘A significant proportion of customers will need convincing of the benefits of using software… as well as support to choose and use software’. 3
“It is encouraging that, despite limited levels of awareness, 70 per cent of those surveyed expressed willingness to comply with the MTD requirements. However, many businesses seemed inclined to leave this to the latest time possible – with 43 per cent saying they would only make changes to their processes once MTD comes into effect.
“It would be helpful for the turnover threshold for MTD for income tax to be confirmed as soon as possible. Removing that element of uncertainty could encourage those businesses which will have to comply with MTD requirements in future to start making preparations for their introduction. Without this, many small businesses and landlords will remain reluctant to commit time and resources to prepare for requirements which they believe may never apply to them.”
Notes for editors
1. The Making Tax Digital for Business: Survey of small businesses and landlords report commissioned by HMRC and prepared by Ipsos MORI, can be found here.
This report is based on quantitative survey research with 2,900 businesses and landlords, and follow-up in-depth interviews with 30 customers. Research fieldwork took place between September and December 2016. To be eligible for the research, customers had to have fewer than 20 employees and an annual turnover (or income from property) of between £10,000 and £10 million.
2. Under Making Tax Digital (MTD) businesses will be required to keep digital records and make quarterly reports to HMRC.
MTD was originally to be introduced for income tax from 1 April 2018. However, on 13 July 2017 the Government announced that it would be delaying the introduction of MTD. Under the new timetable:
- Initially, only businesses over the VAT threshold (currently £85,000) will have to keep digital records.
- Digital records will only be required initially for VAT purposes, and only from April 2019.
- Business will not have to keep digital records or report quarterly for other taxes (e.g. income tax and corporation tax) until April 2020 at the earliest.
More information on MTD can be found here.
3. See page 46 of the Ipsos MORI Report.