Tax & admin · 23 August 2016

Micro firms require greater clarity on tax digitisation

Digital tax for small businesses
Some 43 per cent of micro business owners haven’t yet heard of the government?s new Making Tax Digital initiative
Owners of micro businesses remain in the dark about the government?s plans to overhaul the tax system, according to a recent study.

A new poll by freelancer accounting service FreeAgent has found that some 43 per cent of Britain?s micro business owners and freelancers have no clue what the government?s new Making Tax Digital initiative is.

Of the business owners that have heard of the proposals, as many as 86 per cent said they had not yet received enough information about it and are unaware of any changes likely to take place.

The news follows the recent launch of six government consultation documents about tax digitisation, containing the first details of how the Making Tax Digital plan may impact micro business owners.

Digital record keeping, alongside more regular updates to HMRC, are expected to be the main ways in which smaller businesses are likely to be effected after the new system launches in 2018.

Commenting on the polling, FreeAgent CEO Ed Molyneux said: ?It?s clear that many micro businesses still require more information about what tax digitisation actually is and how it will potentially impact them.?

Despite being under-informed, the survey found that smaller business owners remain upbeat about a move to a digital tax system.

Only one in five micro company owners believed that the initiative would make it harder to do business, while just eight per cent said they felt negatively about digital tax.

Molyneux went on to say: ?Making Tax Digital will be one of the biggest changes made to the UK tax system for generations, and when micro businesses are well-informed about the changes, they are quite positive about them.

?This new consultation is a step in the right direction towards helping micro businesses understand more about tax digitization, but I hope we see even greater clarity over the plans in the future.?

In January this year, Business Advice spoke to Gary Turner ? cloud-based accounting platform Xero?s UK managing director ??about the move to a digital tax system.

Having worked closely with government to develop its so-called ?digital strategy?, Turner hailed the digitisation of tax as a sign that government was waking up to how British entrepreneurialism was evolving.

?If we accept businesses will migrate or start in a digital way, then the [digital tax] transition becomes easier and smarter,? he told Business Advice.

The government recognises it needs to change what it means with VAT and tax returns ? it?s all about becoming smarter.?

Published on 15 August 2016, HMRC?s consultation documents contained a pledge that will see ?1.3m of the country?s smallest businesses exempt from digital record-keeping and quarterly tax updates, when the Making Tax Digital eventually comes into effect.

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Business development