How unprepared are businesses for Making Tax Digital?
New research suggests a third of VAT-registered businesses are not prepared for Making Tax Digital in six months' time
There could be as many as 880,000 VAT-registered businesses in the UK that are unprepared for Making Tax Digital (MTD).
HMRC’s new regulation around digital taxation comes into force for businesses with a turnover of 85,000 or more on 1 April next year.
Recent RSM research, carried out by YouGov, suggests that a third of businesses are unprepared for the MTD rules that will impact them in six months’ time.
According to the Office of National Statistics, there were 2,669,440 VAT-registered businesses in the UK in March 2018. This amounts to a lot of unprepared businesses.
Any businesses that will be affected by the tax digitisation next year must ensure they are using MTD-compatible software to file their returns. To be compatible it must include an Application Programme Interface (API), and HMRC themselves are not providing any software to meet this.
Essentially, the API is needed because it creates a link between a business’s accounting software and HMRC’s systems. Businesses will be able to submit their figures to HMRC from the accounting software they use.
Those affected might be aware of a ‘soft landing’ period for MTD between April 2019 and April 2020, where businesses which should be compliant will not be fined even if they don’t file records correctly.
Less commonly known is that fact that, even if your businesses fails with the record keeping, they absolutely must have an API linking the business’s accounting software with HMRC from the start of the compliance period.
John Forth, VAT partner at RSM, said: “With just six months to go before the rules come into force, there’s a worrying number of VAT-registered business that are completely unaware of the changes. And many of those that are aware have an awful lot of work to do to get ready.
“VAT-registered businesses really need to make the next six months count, to ensure that their software, systems and people are all ready for the change.”
Richard Asquith, global VP of indirect tax at Avalara, is also concerned about the number of businesses which consider themselves unprepared for MTD right now.
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Asquith said: “MTD for VAT will affect the two groups most who have been filing manually: mid and large-sized companies with complex or Group VAT returns; and the many micro-businesses relying on Microsoft Excel or manual records.”
Accountants have been worrying for months about the implications of MTD for their client base and what they can do to help their customers prepare.
According to HMRC, 1.8 million businesses still file manually today, which amounts to 12 percent of VAT-registered businesses.
Asquith advised: “[Businesses] must all adopt a new digital filing solution or they will be blocked from filing returns. If returns are missed, it triggers investigations and likely fines. It is that serious and binary.”
The question of how prepared businesses are has been floating around for months, but with seemingly little impact.
When asked if he thinks the majority of businesses are ready, Asquith said “no”.
He concluded: “According to a survey Avalara carried out on 2 October of 124 companies, only nine percent of companies believe they are fully ready for MTD. That is alarming given the risks of missed VAT returns and potential liabilities.”