Making Tax Digital First Six Months
Thursday, October 3, 2019
The latest JVCC sub committee (Joint VAT Consultative Committee – MTD) was held in London on 23rd October 2019.
HMRC once again claimed MTD is a resounding success with 1.2 million sign ups to MTD and 1.7 million successful submissions. HMRC systems coped well with the volumes, without flooding or technology failure.
Even the helpline has reduced its waiting time to 4.44 minutes. (However, this is from the end of the auto message, not from the point of answer).
From my own experiences I can agree that MTD has not been the implementation headache it might have been. The level of my involvement varies from client to client and this has not changed. It is just a matter of applying a different system to an existing service.
In a recent report from Intuit QuickBooks it is claimed that “MTD has helped small businesses in the UK to generate over £815m in productivity gains over a period of six months since its enactment.”
The report puts the increased productivity down to the adoption of MTD compliant software. Modern accounting software gives businesses greater visibility of their results allowing quicker identification of any anomalies within the business, which in turn drives improvements and growth.
Where-as I am sure this applies to larger businesses with technological resources, the story is quite different for smaller and micro businesses. The businesses CPAA members represent.
The Intuit QuickBooks report states that “10% of business owners risk breaching the law by keeping VAT transactions in paper journals”.
In a study conducted by Capterra, an online B2B provider company, it was found that 47% of small businesses are still employing Excel or similar when keeping their accounts. Concluding that the spreadsheet remains the most used tool for small businesses accounts. However, the study did find that 42% of small businesses do use accounting software.
Whilst I don’t think the problem is a reluctance to adhere to new MTD regulations, it is more a case of it not being a priority in the day to day pressure of running a small business and an overall assumption that it will be taken care of by the business advisors.
The Capterra study found that 55% of small businesses and self-employed people from various industries do not feel confident in their MTD understanding.
This is a crucial service for agents to bring to small business and the self-employed. As HMRC force businesses more and more into using accounting software, interpreting regulations and offering solutions is invaluable to our clients.
Where I have clients who have adopted cloud-based software, the advantages of enhanced data sharing are numerous. The scope for proactive advice has widened, giving the client more confidence in the accounting reports they are producing and improving the accountant/client relationship with more frequent contact.
The shift from a once per year client meeting to prepare the year end accounts to, day to day proactive involvement has increased client contact but reduced the year end process as queries and errors are resolved in year.
The reports and studies show that when asked about the difficulties of compliance to MTD, small businesses declared that the lack of information was the strongest cause of reluctance, followed by the cost of finding new software or upgrading (15%) and finding a compliant software (13%).
For many the solution to software costs and non-compliant systems has been bridging software. There are many efficient and cost-effective solutions on the market.
I do wonder how long this will last. Will the large software companies provide the digital links to bridging software in the long term? These companies could perhaps withdraw the links and persuade businesses into upgrading software with them, to remain compliant.
HMRC concedes that they have no control over how the software companies present their products or how they charge for them.
A statement in the report from a practicing accountant concludes “Some small businesses know that Making Tax Digital is a priority, but they aren’t really sure where to start.”
HMRC are aware of the need for information.
There are demonstrations on YouTube channel on how to sign up to MTD and what is compatible software.
There are still various webinars circulating from HMRC, giving advice and guidance on MTD compliance.
There is a VAT update on Gov.UK giving information and diagrams.
HMRC are not giving any extensions to the soft-landing period. Business must comply with MTD regulations, essentially digitally compliant software, by the end of the twelve-month period.
If businesses are finding they need more time to find the resources to implement digital links, they must notify HMRC and set up a timeframe in which compliance will be achieved.
Where HMRC identifies that a company does not have the necessary digital links they will issue a warning letter with a timeframe. If compliance is still not met by the end of the period given penalties will be issued.
There is no appeal against the penalties for non-digital compliance.
As we know this is just the start of MTD. MTD for other taxes is on its way.
HMRC is putting time and resources into development of ETMP (Enterprise Tax Management Platform) to enhance their vision of agile tax administration and in preparation of MTD for income tax and corporation tax.
No timeframes have been given yet, but the changes are on their way.
This is the time for us as agents to ensure clients have access to necessary digital software solutions and are informed of their obligations.
It is essential for us as agents to be up to date with modern accounting software solutions. Although this is a wide ranging and perhaps at times a daunting task, it is an opportunity to increase client services and modernisation.