Newly published HMRC research into the attitudes of small businesses to the implementation of Making Tax Digital for Business (MTDfB) reveals that four in ten are either 'reluctant' or 'resistant' to the change.
However, the survey also found that the same proportion were either 'embracing' or 'receptive' to making the necessary changes to their business accounting for tax while the remaining fifth described themselves as 'tentative'.
Mandatory MTDfB is due to begin on 1 April 2019. All businesses with a taxable turnover of £85,000 or more will be required to hold their VAT records digitally and plan for automated transmission to HMRC via a special computer link. Later these requirements will be expanded to include income tax and corporation tax declarations as HMRC moves to becoming a 'digital first' tax authority.
The news that so many businesses are unsupportive of the changes may not come as a surprise. The key reasons business owners cite are the additional costs and the level of discomfort they feel in using IT to hold and transmit their valuable business data.
HMRC clearly has some way to go in selling its changes to certain sectors of the economy. However, HMRC has perhaps not helped this process by the delays in delivering detailed guidance to both traders and the IT community which will be responsible for creating the 'digital links' required by businesses to transmit their data.
HMRC released the latest version of its guidance for businesses on 13 July 2018, which contains some specific concessions to ensure that businesses can be ready on time. This includes specific provision for submitting data to agents for onward submission to HMRC, as well as postponement of its previous suggestion that businesses may also wish to submit supplementary data.
It’s perhaps not surprising that many software providers are not expecting final versions of their digital link software to be available for testing until the Autumn of this year. That is a challenge whether the business is large or small.
Whilst there is a welcome 'soft landing' which sees a light touch on penalties for failure to comply with the requirements of MTDfB in the first year (but not underlying VAT errors in the books and records), businesses should not be complacent.
The issue of MTDfB represents a unique challenge for each business. Whether it's creating a single digital journey from source document to submission, creating a file which can be uploaded from multiple inputs without human intervention or planning a review process for VAT return data which complies with the requirements of the new rules, businesses will need to act soon to be able to use the soft landing as a testing period rather than an implementation period. HMRC is committed to this project, anticipating it will raise around £1.15bn cumulative additional VAT revenue by 2022/23.