London City View - HMRC

Making Tax Digital – Small businesses struggle to prepare

The House of Lords Economic Affairs Committee recently criticised the HM Revenue and Customs, saying it “inadequately considered the needs and concerns of smaller businesses”. While they support the Government’s attempts to modernise HMRC systems and seek efficiencies for taxpayers, they remain unconvinced that MTD will reduce error and thereby the tax gap (paragraph 143).

The committee feels that HMRC is neglecting its duty to support small businesses through the implementation of MTD, suggesting it “will make life even more difficult” for them.

Taxback International and SAP Concur have come together to help small businesses assess the requirements of MTD and align their internal processes accordingly through a free, educational webinar.

Small businesses are simply not ready.

Anita Monteith,  Institute of Chartered Accountants in England and Wales (ICAEW) tax manager, recently said that while the ICAEW do support HMRC’s ambitions to embrace digital technology, they also share the concerns of the committee that many businesses are not ready for implementation –  research from the organisation found that more than 40% of businesses which are likely to be affected are not yet aware of MTD for VAT, and that a quarter of businesses are still using paper-based accounting systems.

“Time is running out. MTD for VAT is a major change in tax administration and, with its start date coinciding with Brexit, it is important for businesses, the economy and the UK tax system that it is a success. This is too important to be rushed,” Monteith said.

Clearer communications are needed.

HMRC has not done enough to communicate with taxpayers to support their preparations to meet their Making Tax Digital obligations. HMRC’s dependence on agents to ensure businesses understand their Making Tax Digital for VAT obligations does not recognise the needs of unrepresented taxpayers or small business owners.

The House of Lords Economic Affairs Committee has recommended that HMRC urgently publishes full details of how it’s communication and support systems will meet the needs of taxpayers and agents across different levels of digital capability and skills. They also recommend that HMRC develops guidance on the practicalities of claiming digital exemption with the representative bodies and publishes it as a matter of urgency.

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