Tax & admin · 14 December 2017

HMRC report reveals startlingly low awareness of digital tax transition

Making Tax Digital
The switch to a fully digitised tax system has been pushed back until at least 2020

As many as seven in ten small UK business owners remain unaware of the upcoming digital tax transition, according to new HMRC research, leading to calls for further efforts to inform and support small firms of new obligations.

The tax office polled 2,900 small business owners and landlords to assess current digital capabilities ahead of the government’s Making Tax Digital initiative, and awareness of its rollout.

Although full compliance for small firms will not be obligatory until at least 2020, VAT-registered business owners will be required to submit quarterly VAT returns from April 2019.

But, with the VAT deadline looming, HMRC’s survey revealed that 70 per cent remained unaware of the transition. However, the same number did express willingness to the comply with the requirements.

Further findings showed that 74 per cent of respondents currently paid an external accountant to help with tax and accounts, while only a fifth managed their taxes themselves.

The fact that just a quarter were using computer software to help with accounting, with the vast majority using only spreadsheets or paper to keep financial records, suggested that a significant number of small business owners could struggle to cope with the transition. Broadband connectivity was also cited as a barrier to compliance by one in five respondents.

Overall, one in five respondents expected the digital tax transition to be difficult and disruptive.

In response to HMRC’s findings, the Federation of Small Businesses (FSB) flagged the dangers that digital exclusion posed for owners making the switch to online tax returns.

“This new report highlights how much work is needed to enable the small business community to reap the benefits of digital tax reporting,” said Mike Cherry, chairman of the FSB.

Recent FSB research highlighted a strong lack of confidence in the digital skills of small business owners, and the organisation warned its findings could have direct implications for a successful take-up of Making Tax Digital.

“The fact that so many firms don’t even know Making Tax Digital is on the way is a real concern. Clearly, there needs to be a big push to get the message out there,” Cherry added.

“The 2019 deadline for VAT-registered firms is fast approaching. Filing VAT returns online will present a significant challenge for many so it’s vital that support for these businesses is prioritised over the next 18 months.

“A successful future roll-out of Making Tax Digital rests on the success of those who fall into the scheme from 2019. All of those registered for VAT should now be told their obligations, in full. Voluntary roll-out for other smaller businesses will come about through highlighting individual cases of businesses that have made a success of it. That way, other businesses will choose to opt-in when they’re ready.”

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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