One in five VAT-registered businesses in the dark over MTD

With only weeks to go until the planned introduction of Making Tax Digital, nearly one in five businesses above the VAT threshold still know little or nothing about the new requirements, according to the British Chambers of Commerce (BCC), which is calling on the government to delay the launch

A BCC survey of almost 1,000 firms from across the UK, found that while levels of awareness and preparation have increased since the previous year, 19% of companies which will be required to sign up have never heard of Making Tax Digital or know it only by name.

The business group said its study also identified widespread dissatisfaction on the roll-out of Making Tax Digital, particularly from small businesses, with significant new administrative burdens and a lack of clear guidance from HMRC commonly reported.

Over a third (38%) of businesses have had to upgrade or source new accounting software to prepare for the introduction of Making Tax Digital.

The BCC said businesses are also reporting that they are facing significant costs to upgrade, which it dubbed ‘unacceptable’ at a time when firms are facing a myriad of upfront and Brexit-related costs.

The timing of the introduction of Making Tax Digital, coming just days after the UK’s planned departure from the EU, is particularly concerning for business.

Suren Thiru, the BCC’s head of economics, said: ‘The idea to modernise the UK’s tax system is a good one, but the timing couldn’t be much worse.

‘In the current environment, the introduction of Making Tax Digital is an added cost and administrative burden and there still isn’t adequate understanding or preparation among businesses to make its rollout a success right now.

‘The political process of Brexit has stretched out the level of uncertainty as far as possible, leaving businesses in the dark until the eleventh hour and asking firms to prepare for all possible scenarios. Adding such a fundamental change to their tax practises at the same time was never going to be a recipe for success.

‘It’s time for government to acknowledge that this isn’t the right moment to implement an overhaul of the system. A rollout of this scale is bound to have hiccups, and HMRC’s already stretched resources will be focused on Brexit and changes to tax and customs process, so there is a heightened risk for confusion and disorder.’

The BCC says next week’s Spring Statement would be the perfect opportunity for government to acknowledge that both its agencies and business communities need more time to plan sufficiently for these major changes, and announce a postponement.

The Federation of Small Businesses (FSB) also surveyed 746 VAT-registered UK small businesses at the end of February and beginning of March and found that more than a quarter (27%) reported they have not started preparing for Making Tax Digital, and a further one in five (23%) have received quotes for software that will make them compliant but are yet to purchase access to any.

Small firms stated that putting Making Tax Digital-compliant software in place this year will cost £564 on average. Those with a turnover between £500,001 and £1m put the bill at £872 on average. For firms with a turnover of more than £1m, that figure increased to £1,019.

Mike Cherry, Federation of Small Businesses (FSB) national chairman, said: ‘Promises were made that Making Tax Digital compliance would be affordable. Now many firms are finding themselves on the hook for hundreds of pounds for software.

‘At a time when small business confidence is in the doldrums – and wages, auto-enrolment contributions and business rates are rising – more costs and admin burdens are the last thing they need. They also have the small matter of Brexit to think about.   

‘While we’ve worked hard to ensure our members are aware of Making Tax Digital, firms are finding it far more difficult, time-consuming and expensive to become compliant than was predicted by HMRC – not least because of a cumbersome registration process.  

‘Small business owners shouldn’t be punished for honest mistakes, made more likely by a rushed HMRC roll-out.  

‘We now need to see a full review of the Making Tax Digital rollout and a guarantee that it won’t be forced on those below the VAT threshold until at least the end of this Parliament, in 2022.’

Report by Pat Sweet

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