Making Tax Digital Hitting the Self Employed

 In General

From the introduction of personal tax accounts to the launch of Making Tax Digital (MTD), the Government has been incredibly keen to move businesses and self-employed people towards a paperless future. According to a new study, though, it’s proving pretty expensive for the people it’s supposed to help. 

The rules were applied in April 2019 to all self-employed people who are VAT registered and have a taxable income of more than £85,000. They were supposed make things easier, help people stay on top of their tax affairs and reduce mistakes. 

However, the report from the Association of Taxation Technicians, suggests it has pretty much done the opposite. The need to move to specialist accounting software has cost some businesses thousands of pounds more than promised and in some cases has actually led to more mistakes. 

The survey found that 90% of respondents said digital working had not reduced errors, with many of those saying it had actually contributed to an increase in the number of mistakes. 

While HMRC had predicted the cost to be £109, this proved to be the case for only 10% of respondents. Just under half (45%) put the cost at between £109 and £500 with 12% saying costs had been an alarming £5,000. 

Productivity decreased according to most respondents (55%) with only 14% saying it had risen. Agents have been bearing the brunt of the changes. Three quarters said their clients required help with the move to digital record keeping and 36% and 48% respectively reported that over 75% of their clients needed help keeping their digital records and filing their VAT returns. 

The study suggests businesses and self-employed people are both struggling to make use of the technology and realise the potential benefits of digitisation. 

“Appropriate software can, when used properly and in accordance with a business’s needs, deliver significant benefits,” said Tina Riches, Chair of the joint CIOT and ATT digitalisation and agent services committee. “But our survey demonstrates that MTD is not currently delivering those benefits to businesses, nor likely to reduce the tax gap. A thorough review and further consultation is needed before extending its scope.”

The road ahead for MTD is uncertain. In 2020, qualifying individuals and businesses will need to transfer data from compatible software through a digital link. In 2021 MTD may be extended to all VAT registered businesses. However, the underwhelming data from this survey may put that into jeopardy.  

If you’re affected by these changes, it is vital to ensure you have MTD compatible software. In some cases, this may mean upgrading existing packages or getting advice about how software should be applied. While technology can be extremely effective, it must be applied in the right way and this is where many people are currently falling short. 

MTD has certainly had an impact, but as this report suggests it might not be the impact the Government hoped for. As such, it helps to get advice. Support from qualified experts can show you how to use technology, what you need to do to comply and how you can minimise the costs.

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