Despite the implementation of HMRC’s new Making Tax Digital (MTD) system creeping up on small business owners across the UK, almost half of the country’s accountants are not ready to advise clients on getting their house in order for the new regime.
Research from Intuit has found 44% of accountants feel they do not know much about MTD, while 30% admit to knowing little, or nothing at all, about HMRC’s new scheme - thus creating a worrying prospect for businesses who need help getting their enterprise ready.
Our team of tax accountants have broken down everything you need to know about Making Tax Digital so you can get up to speed, and just as importantly, ensure you avoid any fines come April next year when the VAT element of the new system is launched.
MTD is a key component of HMRC’s plan to become a world-leading digital tax authority.
It encompasses the self-employed and landlords who pay income tax on their profits, entities who are registered for VAT and companies who pay corporation tax on their trading profits.
The plan is for MTD to be applicable to all VAT schemes and registrations, whether they be annual, retail, flat rate or partial exemption etc.
All businesses with a taxable turnover above the VAT registration threshold, currently set at £85,000 per annum, will have to comply with the new guidelines.
While it may not be compulsory, businesses with a turnover below the current threshold may also opt to file their VAT returns through MTD if they please.
Businesses who fall within the MTD spectrum must use, according to HMRC, "functional compatible software" to meet the new requirements.
Said software will allow the organisation to maintain digital business records and files relevant VAT information electronically.
While many businesses wait for full clarity from HMRC on what falls into the category of "functional compatible software" it appears many companies will only have a short window to ensure that they are compliant with the new rules.
This window is further narrowed by the lack of understanding on a huge number of accountants’ behalf. Failure to offer clients guidance on being prepared ahead of HMRC’s deadline next year could see a number of small businesses hit with fines.
Overall, the hypothesis is that improving access to data will speed up the returns system, allowing HMRC to process VAT refunds and deal with other queries faster and more efficiently.
The new research has also found that learning about MTD is the biggest concern for VAT-registered small business owners as they transition to digital accounting.
Over three-quarters (76%) cited understanding the legislation as a challenge, followed closely by finding new tools to help them comply (70%).
Further to that, 66% were concerned by finding the time to learn, while 64% are finding it difficult managing the additional work and 63% are struggling to choose the right cloud accounting software.
From April 2019, VAT registered businesses with above £85,000 turnover will be required to maintain a digital record of their VAT transactions and submit their VAT returns using MTD-compliant software.
One of the most significant points of MTD for VAT is that under the new rules, VAT returns will need to include a much wider range of information than is required in the existing system.
In addition, the new rules bring another facility to the table which will allow businesses to submit supplementary data to HMRC.
The critical need for widespread education is clear, with 41% of small business owners still unaware of MTD, and 22% aware of what it is, but only planning to file taxes digitally if they were to incur financial penalties.
MTD is a prime opportunity for small business owners to harness the power of cloud technology, as well as availing of a NTD-savvy accountants who can assume an advisory role with their clients, especially considering three-quarters of small business owners struggle to grasp the legislation and its implications..
Change is never easy, but the time to initiate these conversations is now.
Though educating clients on MTD is a priority for accountants and bookkeepers, the research reveals that many still need to expand their own knowledge of the new regulation.