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Making Tax Digital for VAT – Treating Small Businesses Fairly?

Making Tax Digital for VAT – Treating Small Businesses Fairly?

The Economic Affairs Committee published its damning report on Making Tax Digital (“MTD”) for VAT on the 22nd November 2018. The report concluded that HMRC had failed to adequately support small businesses and made a recommendation that the mandatory introduction of MTD for VAT be delayed by at least one year.

HMRC has issued plans to make businesses file quarterly VAT returns digitally. The first phase is planned to start from April 2019 when any business that is VAT registered with an annual turnover above £85,000 will have to file it’s VAT return digitally. The Lords Economic Affairs Committee has criticised HMRC saying that there are low levels of awareness of MTD compliance and difficulty in navigating software amongst small businesses.

Lord Forsyth of Drumlean, Chairman of the Economic Affairs Committee, said:

HMRC has neglected its responsibility to support small businesses with Making Tax Digital for VAT. HMRC are not listening to small businesses, while offering a six-month deferral to many in the public sector. Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier. The Government must delay its introduction.”

“The Government has failed to listen to the warnings in our previous report. It must slow down its Making Tax Digital programme and listen carefully to the concerns raised by this Committee, small businesses and accountants.”

Other report findings include:

  • HMRC is alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019.
  • The costs to businesses of MTD for VAT will be far more than HMRC’s impact assessment.
  • HMRC must publish how its communication and support systems will meet the needs of taxpayers and agents across different levels of digital capability and skills.
  • So far, no free software products have been offered by the software industry. The smallest businesses will struggle unless HMRC provides a basic free software option.
  • The Government should publish its plan for the long-term development of MTD, including milestones and when key decisions will be made.
  • The Government must wait until at least April 2022 before Making Tax Digital is extended to other taxes in order for lessons to be learnt before the programme’s implementation.
  • The penalties regime could be fairer and encourage taxpayers to remedy defaults promptly by giving taxpayers a longer grace period before penalties for late payment are applied.
  • The Government’s claim that MTD for VAT will increase the amount of tax collected remains unconvincing. They should revisit their assumptions and publish another revised impact assessment.
  • Neither Treasury nor HMRC are taking the risks to implementation of Making Tax Digital seriously enough.

If returns are being filed via an Accountant, then the VAT return can still be presented in Excel format or whichever method is chosen by the client. The return can then be filed digitally on the client’s behalf by their Accountant. Any changes made to the VAT return by the accountant need to be reflected in the clients’ accounts so that the digital and manual records agree, failure to do so is illegal.

New software is being developed by all the leading financial software providers to help with the implementation of MTD. If you are confused as to how, or if it will affect you or need help in implementing new accounting procedures contact S4B and let us take the stress away.

S4B are a team of Chartered Accountants based in Maidenhead who can help you with all your compliance issues. Contact us today at info@s4b.uk.com or call us on 01628 623444, to see how we can help you and help your business run more smoothly.

 

 

 

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