HMRC have published Making Tax Digital for Business: Survey of small businesses and landlords, the results of research conducted in 2016 with 2,900 businesses and landlords, regarding Making Tax Digital (MTD) for business.
The aim was to:
- Try and quantify the small business and landlord population in terms of their likely engagement with MTD.
- Identify barriers and levers to engagement with MTD.
- Identify support and information requirements.
What is Making Tax Digital for Business?
- From April 2019 VAT registered traders will have to report to HMRC under a new Making Tax Digital VAT reporting sequence.
- From April 2020 the self-assessment tax return is being replaced by five new Reporting obligations made during and after the tax year.
- From April 2020 is expected that companies and large partnerships will move over to MTD Reporting.
- Businesses with a turnover of less than £10,000 per year will be excluded.
What did the survey find?
Of those taxpayers surveyed, of which nearly half were sole traders and nearly a third were over the VAT threshold:
- 74% had help with their accounts and tax from an external, paid accountant.
- Where external tax agents were used it was mostly for calculating tax payable, because they were perceived as tax experts and the taxpayer had a lack of knowledge and fear of getting things wrong.
- Over 75% dealt with their own record keeping.
- Over 80% found keeping records of their income and expenditure, calculating the amount of payable tax, and completing and submitting their returns straightforward and were recording their transactions, invoices and receipts in real time or at least quarterly.
- Nearly 20% of ITSA customers left all their record keeping to the end of the tax year.
- Almost all knew which records they needed to keep and were confident that the information they provided to HMRC was correct.
When it came to digital use and capabilities:
- Over 95% had access to digital devices and the internet.
- Use of spreadsheets or paper methods for record keeping was more widespread than software.
- Use of software or apps on a smartphone or tablet for any tax-related tasks was low at just 26%.
- The main reason for not using software was a perceived lack of need, either because the business was simple and the processes in place were ‘fit-for-purpose’, or because the agent handled all of the taxes.
- 25% were not using software because they lacked confidence with technology.
- Non-software users were found to have an emotional attachment to their existing method of record keeping and had an “if it isn’t broken why fix it?” mentality.
- 20% of those who had internet access for work reported that their internet (speed and/or reliability) was poor; this was predominantly those in rural areas.
What about taxpayer engagement and their support requirements?
Only 30% of those surveyed were aware of the requirements to use software or to send quarterly updates to HMRC; taxpayers using software had higher awareness of the forthcoming changes.
- The same number expressed a willingness to comply with the MTD requirements although their preference was to do so as late as possible.
- 25% said they would only comply with the requirements if there were penalties
- 15% would choose not to submit quarterly reports, if it was cheaper to pay a fine than comply.
Customers were divided on whether it would be easy or difficult to comply with MTD requirements.
- 40% reported it would be easy for to use software to keep digital records and to submit quarterly updates.
- A third believed it would be difficult.
Comments:
It should be noted that at the time of this research there was a more accelerated timetable planned for introducing MTD, with commencement planned for April 2018 for those with profits chargeable to Income Tax and paying Class 4 National Insurance contributions (NICs) and turnovers in excess of the VAT threshold.
What this research suggests is that whilst small businesses and landlords want to be compliant, they are not all rushing to embrace MTD and are very reliant on external advisors to help them through the process. It is concerning then that of the small number who were aware of the forthcoming changes, few had achieved this awareness via their agents and advisors, with the software providers seemingly leading the charge in educating taxpayers.
Links:
Finance Act 2018-19 Rolling planner
External links:
HMRC Making Tax Digital for Business: Survey of small businesses and landlords
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