Small firms not ready for Making Tax Digital

New research for HMRC has found that 70% of businesses are still unaware of the forthcoming roll-out of Making Tax Digital (MTD).

Making Tax Digital will require business owners to use accounting software in order to file their tax returns online. The timescale for compliance has been extended to allow SMEs to prepare but all VAT-registered businesses will have to submit their quarterly VAT returns online from April 2019.

The latest research, conducted by Ipsos Mori for HMRC, involved a survey of 2,900 small businesses and landlords as well as in-depth interviews with 40 business owners. The findings show that 20% of small firms and landlords are not using digital tax platforms because they lack confidence in their digital skills.

Other key findings include:

  • 74% currently get help with their accounts and tax from an external paid accountant;
  • Only 21% manage their taxes themselves;
  • Most of those polled use spreadsheets or paper to keep financial records - just 26% use software;
  • One third say they expect making quarterly digital tax returns will be difficult;
  • One in five says poor broadband will be a barrier to complying;
  • 72% said they would ask an accountant to help them with Making Tax Digital.

Mike Cherry, national chairman of the Federation of Small Businesses (FSB), said: "This new report highlights how much work is needed to enable the small business community to reap the benefits of digital tax reporting. We know that a lack of digital skills within small firms is proving a barrier to growth across the UK - it could also threaten the successful take-up of MTD. The fact that so many firms don't even know MTD is on the way is a real concern. Clearly, there needs to be a big push to get the message out there.

"A successful future roll-out of MTD 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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