Latest government figures show that 1.2 million businesses have to register for Making Tax Digital (MTD) before the 31 March 2019 deadline. 2,000 companies are registering every day. At that rate, the registration process won’t be completed until October 2020. It’s reasonable to expect that the rate of new registrations will increase but there seems to be no reasonable prospect that every one of the 1.2 million businesses will have made the transition to MTD before 1 April 2019. As the House of Lords economic affairs committee observed in November 2018 ‘HMRC is alone in its confidence that all [1 million] businesses will be ready for MTD’.
So, beyond all the delays, chaos and muddle which have beset MTD from the outset, what’s going wrong?
Attempts to gauge business opinion, especially among the smaller VAT-registered businesses, suggest that Brexit uncertainties are sapping enthusiasm for further change in any direction. Businesses whose economic worries leave them focused almost exclusively on trading conditions from April 2019 simply don’t have the drive or energy to embrace what feels like an unnecessary administrative change imposed by HMRC.
There’s also a degree of cynicism that MTD does not do what it says on the can. Many government statements refer to businesses being mandated within MTD. What does ‘mandated’ actually mean? With multiple definitions, it’s about as informative as ‘sanctioned’.
While Mel Stride, financial secretary to the Treasury, is happy to be quoted as saying that ‘it has never been more important for businesses to be able to seize the opportunities that digital technology offers’, businesses can’t escape the feeling that the project is actually about increasing their VAT bills over time and so reducing the tax gap. To put it another way, increasing the burden of digital tax compliance doesn’t sound like seizing the opportunities of digital technology.
And then there’s the software issue. Once again, HMRC has ducked its obligation to provide the filing software necessary for taxpayers to comply with their statutory obligations. The tax authority has listed around 160 pieces of software which are said to be compliant with MTD. Some are free; others require ongoing subscriptions; and will any software changes be compatible with software upgrades required for a pending Brexit? But in this enormous pile of possibilities, how is small business to sort through an undifferentiated list and work out what the best solution is?
Of course, many businesses will turn to their advisers for help with this. Even the registration process through the adviser isn’t straightforward. First, the adviser has to register. Only when that’s been done can the client business be registered for MTD.
The last factor which is sapping enthusiasm for MTD is the promised soft landing. The prospect that HMRC will take a lenient view of businesses’ MTD performance until 31 March 2020 is encouraging many businesses to defer engagement with MTD until later. So far as the end of March 2019 is concerned, the only thing that matters to many businesses is Brexit.