UK’s Small Businesses Face Digital Tax Deadline by Forbes – Entrepreneurs

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Just one month and counting until huge numbers of Britain’s small businesses face major disruption and a potentially expensive administrative bill – and we’re not talking about the UK’s departure from the European Union.

From 6 April, the first day of the new tax year, more than a million small and medium-sized enterprises will be caught up in the UK’s new Making Tax Digital project, an ambitious attempt to digitalise the tax system. The project requires all businesses registered for value added tax (VAT) and turning over more than £85,000 a year (the level at which VAT registration currently becomes compulsory) to begin filing their VAT returns using specialist accounting software.

In theory, Making Tax Digital has advantages for all concerned. For HM Revenue & Customs, the agency in charge of administering the tax system, it should reduce costs, improve accuracy and help with the battle against non-compliance and outright fraud. For businesses, meanwhile, the advent of new technology promises greater efficiency and less productivity-sapping paper-pushing.

In practice, however, there have been all sorts of difficulties with the initiative. So much so that the House of Lords economic affairs committee, an independent group of cross-party politicians, has been campaigning for a delay to the launch of the new system. It has already published one damning report into the launch of Making Tax Digital and its warnings are widely echoed by small business groups.

One major failure has been a lack of publicity, with many small businesses still in the dark about their responsibilities. The House of Lords report estimated that 40 per cent of businesses affected – some 400,000 firms – don’t know anything about it.

Also, while it promised to do so when first announcing Making Tax Digital, HMRC has failed to find a software provider that is prepared to offer a free package that will enable small businesses to comply without having to pay. Instead, the authority has published research suggesting the new system will cost firms just £70 a year – a figure that advisers to small businesses say is far too low.

By contrast, the Institute of Chartered Accountants says £1,250 a year is a more accurate estimate, once you take into account costs such as staff training as well as the price of the software itself. The Federation of Small Businesses has suggested £2,770 a year is closer to the right figure.

Under pressure: small businesses face tax headacheGetty

Many small businesses will also be surprised to discover that while they are already filing their VAT returns digitally, they will still need to make changes and, potentially, invest in new software. HMRC currently manages an online portal through which businesses can make their submissions, but this facility will be switched off in the move to the new system.

The bottom line is that small businesses are now going to have to invest in affordable accounting software if they don’t already have a suitable package  – that will involve a monthly cost, though the cheapest packages start at less than £10 a month.

On the plus side, these packages offer a range of useful features, reducing the administrative burden of record-keeping and tax filings with facilities such as reconciliation with bank accounts and automated calculation of your bills. In the medium to longer term, many small businesses may be pleased with the return on their investment.

In the short term, however, time is running out for small businesses to get in shape for a system they know little about. And with the launch of Making Tax Digital due just seven days after Brexit, more disruption is the last thing they need.

March 5, 2019 at 04:42AM
Forbes – Entrepreneurs