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Making Tax Digital – changes to timetable ‘do not go far enough’

The government’s ‘Making Tax Digital’ plans were heralded as a “revolutionary simplification of tax collection” by former chancellor George Osborne, following their announcement in 2015.

Businesses of all sizes would move their tax accounting online by the summer of 2018, providing quarterly reports to HMRC. Traditional annual tax returns and mounds of paperwork would become a thing of the past.

Skip forward two years and the controversial reforms have been largely pushed back to 2020. Businesses with an annual turnover under £85,000 will no longer have to make the changes at all, following new HMRC guidance in July.

John Griffin, a Partner at Leicestershire accountancy firm Newby Castleman with 30 years’ experience in the industry, explains why the scheme has hit a bump in the road.

“Recording tax information digitally isn’t in itself a bad thing and contrary to what George Osborne would have had you believe, it isn’t anything new or ‘revolutionary’. Digital submission of information to HMRC  has existed for  many years.

 “It’s also definitely not a “simplification”, unless you’re a big business with complicated accounts. To expect businesses of all sizes, including brand-new enterprises with one or two staff, to keep in-depth financial information updated online throughout the year was never realistic.

“Even for slightly larger businesses, to increase the number of times you’re reporting each year from one to four, and to totally change the way you put together those reports, is a big upheaval.

“The changes to the plans are welcome but they do not go far enough to offset the negative impact on small businesses. It’s great that some will no longer be under pressure to make a speedy switch, but it is naïve to set the mark at the VAT threshold of £85,000, as though the circumstances of a firm bringing in £100,000 a year are radically different.

“Even with these proposed changes, we’re still going to see businesses like chip shops and takeaways having to keep real-time, digital financial records. Unless they can become very literate in accountancy very quickly, they’re going to need full-time professional advice – either in-house or from an accountancy firm.

“For me, the turnover mark should be at least £1m for the foreseeable future. This would relieve more than 15,000 businesses in Leicestershire alone from the undue pressures of trying to push major changes through before an arbitrary deadline.

“The current system isn’t so badly broken that we can’t have a well-managed, gradual introduction of Making Tax Digital, starting from the top down. Look how organised the introduction of pensions auto-enrolment was in comparison- staged over a number of years, initially just with big businesses that could absorb the extra burden. By the time it had filtered down to smaller businesses, the teething problems had been identified and sorted out.

“Instead, we have this haphazard approach that cuts down on HMRC’s administrative burden and transfers it onto businesses. Ideally, we’d see an investment in HMRC support staff to bridge the gap, but that seems unlikely given recent cuts.

“Our industry therefore needs to pick up the baton and ensure that our smaller and mid-sized clients are well-prepared for what is to come. For owners of those businesses, a detailed transition plan is vitally important, and the postponement of the deadline does at least give them a chance to do that in a measured way.”

 

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