By Mark Jones, director of Carmarthen-based Clay Shaw Butler chartered accountants and business consultants. The Money Matters column appears in the Pembrokeshire Herald, the Carmarthenshire Herald and the Llanelli Herald newspapers.By Mark Jones, director of Carmarthen-based Clay Shaw Butler chartered accountants and business consultants.
Parliament’s Economic Affairs Committee has warned HMRC that small businesses ‘could pay a heavy price’ for Making Tax Digital for VAT (MTDfV).
The committee stated that HMRC has ‘failed to adequately support small businesses’ ahead of the introduction of MTDfV.
MTDfV is generally set to come into effect for the from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000.
Under MTDfV, businesses must keep some records digitally and submit their VAT returns via an Application Programming Interface (API).
The Committee has urged HMRC and the Government to ‘start listening’ to small businesses MTDfV concerns.
HMRC recently sent businesses within the scope of MTDfV so-called ‘encouragement letters’. These letters were sent to 200,000 businesses which are eligible to join the pilot scheme.
If you want help with the MTDfV scheme, then please contact the team at West Wales accountants Clay Shaw Butler.
The Economic Affairs Committee report found that many businesses will not be ready for the introduction of MTDfV in April 2019. In particular, HMRC has inadequately considered the needs and concerns of smaller businesses.
The Committee noted that a six-month deferral has been given to some organisations in the public sector, but not to small businesses who have the fewest resources to manage their transition.
The Committee therefore recommended waiting at least one year until MTDfV is made mandatory – and transitioning in stages to allow businesses to join when they are ready.
Lord Forsyth of Drumlean, Chairman of the Economic Affairs Committee, said: “HMRC has neglected its responsibility to support small businesses with MTDfV.
“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.
“The Government has failed to listen to the warnings in our previous report. It must slow down its Making Tax Digital programme and listen carefully to the concerns raised by this committee, small businesses and accountants.”
Other report findings include:
- HMRC is alone in its confidence that all one million businesses will be ready for MTDfV in April 2019.
- The costs to businesses of MTDfV 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 by the software industry. The smallest businesses will struggle unless HMRC provides a basic free software option.
- The Government should publish its plan for the long-term development of MTD, including milestones and when key decisions will be made.
- The Government must wait until at least April 2022 before Making Tax Digital is extended to other taxes in order for lessons to be learnt before the programme’s implementation.
- The penalties regime could be fairer and encourage taxpayers to remedy defaults promptly by giving taxpayers a longer grace period before penalties for late payment are applied.
- The Government’s claim that MTD for VAT will increase the amount of tax collected remains unconvincing.
- Neither Treasury nor HMRC are taking the risks to implementation of Making Tax Digital seriously enough.
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