HM Treasury commissioned some research into the implementation of Making Tax Digital (MTD) for VAT and on ‘Tax Day’ published the results from that process.
To be honest the findings are not unexpected, but this was important research to undertake given the gradual extension of Making Tax Digital, which is the first phase of a modern, digital tax service (MTD for income tax is planned to be introduced from April 2023).
As a reminder, VAT registered businesses with a taxable turnover above the VAT registration threshold have been required to operate MTD since April 2019 and at present over 1.4 million businesses have started using MTD. Interestingly an estimated 27% of smaller VAT registered businesses, who are not yet required to operate MTD, have chosen to do so voluntarily.
The research has taught us that:
- The key drivers when choosing a bookkeeping system were timing, confidence and need.
- The records system implemented at the start of an owners business journey, once in place there is often a reluctance to change that system.
- Those using bridging software were also found to be at the more negative end of the feedback spectrum.
- New businesses found it easier to sign up for MTD.
- Most participants did not think they could expect any significant benefits from moving to MTD, even spending relatively small sums to comply were viewed as a cost rather than an investment.
- Real-time record keeping: Having cloud accounts and mobile apps meant that participants could update their finances in real-time and reduced the scope for human error.
- A small proportion of businesses were using it as a nudge to improve software and, at best, a catalyst to improve business processes beyond this.
- The full benefits of MTD for VAT were felt by businesses that invested in software with greater functionality and using it to its full potential to facilitate real-time record keeping.
What is clear is that whilst there may be few major (or significant) costs or benefits, we can expect a further advancement (and automation) of our tax system in the near future. HMRC will continue to push ahead with this, but it is suggested that they improve communications with taxpayers so they can help businesses to see the wider benefits.
From the outset Randall & Payne have always recommended utilising cloud base software for all our clients. Yes it has resulted in some significant changes to record keeping systems but also in making processes more efficient and less error prone. MTD provides a real opportunity to improve business processes and for us to help people achieve their ultimate goals whatever they are.
More details on the consultations and proposals from ‘Tax Day’ will be published in our news feed over the coming days, or you can email us at Tax@randall-payne.co.uk and we can arrange a call back to discuss anything in more detail.