You don’t have to go far to find people talking about one of the biggest shifts in the tax landscape in decades, Making Tax Digital (MTD). If you look at the government’s site on the subject, MTD is a great plan to help out small business owners. If you read materials from financial pundits and accountants, the consensus is a cautious positive.
But what about the people who will be most affected by MTD, small businesses? How do they feel about it?
Like any big change, there are people on both sides: some small business owners feel positively about MTD, others feel negatively about it. But the biggest feeling seems to be that of confusion.
No one seems to be quite sure when it might take effect, what that might mean for them and their business, and whether they should be in favour of it or not.
If the numbers are anything to go by, this confusion is translating into a knee-jerk negative response.
Recent reports indicate that the majority of small businesses in the UK are not ready for MTD — one report found that 65% of businesses will have to make at least some changes to their method of accounting before they’re ready to use the new system. While for some this could be as easy as switching from a spreadsheet system of accounting to digital accounting software, for others, it’s going to mean making the transition from manual, ledger-style accounting into the digital age.
There also appear to be a number of common fears surrounding MTD, some of which have gathered so much momentum in the small business community’s conversation that HMRC has addressed them directly in a myth-buster style resource.
So what are people afraid of?
Having to file four tax returns a year
Many small business owners have heard or understood from reading HMRC’s articles on the MTD that they will now have to go through the already onerous process of filing a yearly tax return four times a year. While this would certainly be frustrating if it were true, it simply isn’t. MTD is designed to make filing your tax much easier, so while you will need to review and confirm information four times a year, it won’t be anything like the process of filing an annual tax return.
Not being able to figure out the new system
The new system for filing tax is totally digital, leaving some business owners worried that they won’t be able to access or understand the MTD interface. While there is some legitimacy to this concern — while UK SMEs have made great strides over the past decade, they’re still lagging behind in digital uses, to the tune of nearly £19 billion in lost potential revenue — HMRC has foreseen this issue and is putting measures in place to deal with it.
The interface is being designed to be as simple as possible to use, and there will also be help available for businesses, particularly during periods of transition. Those who are unable for one reason or another to use the new system will be provided with alternatives, like the option to submit data via phone, or having another person stand in as a proxy to submit their tax data.
Having to spend a lot of time, energy, and money to get MTD-ready
There are lots of rumours flying around about the things small business owners will have to do to get ready for MTD, from buying expensive new software to hiring an accountant to consult with as they make the changeover. But while it is true that the majority of small businesses in the UK aren’t ready for MTD now, the transition shouldn’t be as painful as many seem to imagine.
In fact, some businesses probably won’t need to change that much at all, if any. If you’re already using digital accounting software that works with MTD (and there are several commonly used systems out there that should be MTD-compliant once the plan actually rolls out), then your transition should be as simple as clicking a few links and confirming some information about your business.
If you’re not currently using a digital accounting system, then you will need to begin using one, but it should be a relatively easy transition. HMRC says that there will be free software available if you want to start tracking your finances that way; otherwise, you can make the switch to any one of a number of digital accounting programmes.
What MTD actually means for your business
Rumours and reflexive reactions aside, MTD is going to be good news for the majority of businesses. It’s specifically designed to make doing tax easier for small businesses, not to mention give you a good idea of what you’ll actually need to pay at the end of the year so you don’t get stuck with an unexpectedly high bill.
While there will be transitions required, they should be fairly minimal for most businesses, and HMRC has a grace period of at least a year built in during which time any mistakes or errors made as people learn to use the MTD interface won’t be subject to fines.
It’s going to be a change, but we believe it will be a good one. And we’re here to help you make it!
If you’re one of the many small business owners in the UK who’s not sure what to do to get MTD-ready, we’ve got resources and information for you right here.