With Less Than 4 Months To Go, Making Tax Digital for VAT is Looking Like a Car Crash Waiting to Happen….
These aren’t our works. Making Tax Digital (‘MTD’) for VAT is in a mess! The ‘car crash’ reference was uttered recently after the House of Lords economic affairs finance bill sub-committee had heard from tax experts and business representatives. Surely the people in the know are businesses and tax experts rather than civil servants?
The former expressed concerns about the way that the programme has been implemented and communication between HMRC and small businesses. Committee member Lord Lee was heard to say:
‘The evidence we have had is absolutely overwhelming in that there is huge under-preparedness. The firm impression we have at the moment is that we are heading for a giant car crash.’
The Committee said it should be delayed by at least one year and the government should wait until April 2022 before extending it to other taxes so that lessons can be learned.
The Lords Assert Themselves
The Lords may enjoy that “Marmite” status with the public but there’s no denying that many of them are seasoned business owners, lawyers and experienced politicians. They say that many businesses will not be ready for the introduction of MTD for VAT in April 2019. They believe that HMRC has inadequately considered the needs and concerns of smaller businesses.
They conclude that neither the government nor HMRC have listened to the warnings in the committee’s report on MTD for business in March 2017, now over 20 months ago.
The Chairman Lord Forsyth of Drumlean said:
“HMRC has neglected its responsibility to support small businesses with MTD for VAT. It is not listening to small businesses, while offering a six-month deferral for 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.”
And There’s More
Other report findings include:
- Only HMRC is confident that all one million businesses will be ready for MTD for VAT in April.
- 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.
- The penalties regime could be fairer and encourage taxpayers to remedy defaults promptly. For example offering a longer grace period before fines for late payment are applied.
According to one survey by a large firm of Accountants, only 36% of businesses are prepared for the new regime and 48% have no plan in place. The rest do not even know about it.
Small Businesses are Completely Unprepared
Small businesses are the most unprepared, having used spreadsheets for many years. They often use a self-employed or part time employed book keeper who may hand back the figures to the business owner. They often file VAT returns themselves using HMRC software.
As mentioned previously, this HMRC software will start to disappear from next April. Does your book keeper know about MTD and have they put plans in place for you?
Bridging software provides “Digital Links” between the spreadsheet and the HMRC computer that receives your return over the internet. The digital link will read your spreadsheet electronically and you do nothing more. Digital link software is now in development, but when will it be ready?
The more robust long term way forward may be cloud accounting because this produces business accounts “as you go”, not just a VAT return.
To discuss being ready for MTD VAT do give us a call for a chat without obligation.