Making Tax Digital to go ahead from April 2022 for all limited companies
Sole traders with over £10,000 in yearly sales will also have to file their tax returns digitally, albeit not until April 2023, a year later than the PSCs will be brought under the scheme.
Announced yesterday by Treasury minister Jesse Norman, the expansion of MTD was hailed as the “next step to creating a modernised digital tax system fit for the 21st century.”
In practical terms, he said it should make ‘keeping on top of tax affairs easier;’ ‘boost productivity’ and reduce error, which costs £8.5bn, said the minister, citing new tax gap data.
'Great for serious business-owners'
Broadly, advisers agree, although not all HMRC customers will want to be forced online.
“It is fair to say that using software…for your VAT and record keeping does free up time”, says Helen Christopher, operations director at contractor accountancy firm Orange Genie.
“This is great for….serious business-owners but for some of the smallest of businesses, those who run as a lifestyle choice or for the thousands of trades people who run small simple businesses to pay their bills, the cost of digitalisation can be off-putting.”
'Wary of technology'
Drilling down further into who may be deterred, Christopher said some people because of their “generation” can be "wary of technology" and, initially, prefer paper records instead.
Then, there are those who businesses are just “so straightforward” that the perceived benefits will be minimal, she said, set against the cost and hassle of filing online with MTD software.
“Digitising the [tax return] processes may seem like an onerous task at first,” acknowledges Ed Molyneux, boss at accounting platform FreeAgent.
“But once in place, they will create time savings, greater efficiency, [and] encourage use of other fintech software.”
'It will make accountants more pro-active'
A tax expert speaking anonymously echoed that once one digital product tends to get used by a client, other products to digitise additional areas of book-keeping tend to follow.
“There are challenges for SMEs and smaller businesses particularly,” another contractor accountant Patrick Gribben said of MTD becoming compulsory for over one million firms.
“[But it’s also] an opportunity for many accountancy practices to provide a more proactive service”.
'Tax planning opportunities'
And the ‘serious business owner’ is indeed the beneficiary of MTD expanding, signalled Gribben, head of client services at Intouch Accounting.
“[It should] help them enjoy the benefit of having an accountant or tax professional review their business performance regularly, avoid unexpected tax bills and not miss tax planning opportunities.”
Although there is no need to engage an accountant to use MTD, many accountancy firms are already operating either an online-only basis, or have MTD-compliant solutions as standard.
'Greater clarity needed'
But at FreeAgent, its boss Mr Molyneux, a former freelancer, believes the government cannot afford to rest on its laurels, and ought to learn lessons from its MTD rollouts to date.
“It will be important for the government to remember that micro-businesses require more information about what tax digitisation actually is,” he said.
“I hope that we see even greater clarity over the plans so that SME owners feel fully informed positively about the benefits that digital tax can provide”.
'Talk to your accountant to check they will be ready too'
Those company owners and sole traders currently behind the digital curve will need that clarity the most, and the quickest, especially if their book-keeper is offline as well.
“Anyone not keeping digital records will need to think about how they are going to address this going forward and what is going to work for their business,” recommends Orange Genie’s Ms Christopher.
“Some of the smallest businesses out there will be taking advice from one-man band accountants working from home. These business-owners will need to talk to their accountants to be sure that they too are going to be ready and able to file returns digitally.”