Most SMEs unprepared for Making Tax Digital

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The overwhelming majority (84%) of business owners remain in the dark over making tax digital (MTD), according to government research.

Ipsos Mori polled 2,900 small businesses and landlords for HMRC and found that 71% were unaware of the requirement to submit quarterly updates from 2020.

A further 13% had heard of the requirements but knew nothing about them.

MTD will mean most businesses and taxpayers access their tax affairs online through digital accounts from 2020.

VAT-registered businesses with an annual turnover of more than £85,000 will be the first to submit quarterly reports to HMRC from April 2019.

Though many small businesses and landlords were unaware of the specific requirements of MTD, the majority (70%) were willing to comply with it.

40% said they wanted guidance on how to prepare for MTD, and 72% said they would ask an accountant or tax agent for advice.

Key dates

As it stands, and subject to any further change, MTD for income tax will not be mandated until April 2020.

The same date is pencilled in for corporation tax, although it seems likely to be delayed.

In the meantime, HMRC and the project’s software developers are undertaking preparatory work to ensure they are ready when VAT filing begins properly under MTD from April 2019.

Income tax MTD trials are up and running, while VAT testing should be taking place from April 2018.

Using digital tools

According to the study, 26% of landlords and business owners used software on smartphone apps for tax-related tasks, such as record keeping and submitting returns to the taxman.

More than half (52%) of those liable for corporation tax used digital platforms, while use of digital software was the lowest among landlords (13%).

The main reason for this reluctance was because business owners or landlords believed existing processes were fit for purpose, while 1 in 5 respondents lacked confidence using technology.

Software update

A new breed of still unspecified software will connect to an HMRC application programming interface (API), which will enable a piece of commercial software to share data with HMRC’s servers.

Sage fired the first shot earlier this month with the release of its personal tax account viewer, which is the first compatible API.

More HMRC-compatible APIs are set to follow in the coming months.

What happens next?

Some businesses are taking part in ongoing MTD trials to ensure the smoothest transition, while the Federation of Small Businesses (FSB) is calling on HMRC to provide “a big push” to raise awareness.

Mike Cherry, chairman of the FSB, said:

“This new report highlights how much work is needed to enable the small business community to reap the benefits of digital tax reporting.

“The fact that so many firms don’t even know MTD is on the way is a real concern. Clearly, there needs to be a big push to get the message out there.”