UK SMEs landed with average bill of £564 for Making Tax Digital

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The Federation of Small Businesses (FSB) is urging the chancellor to recommit to light-touch enforcement of MTD at Wednesday’s Spring statement as its latest survey shows that half of small businesses are not currently ready to comply with the scheme, which comes into force three weeks today.

More than a quarter of firms have not started preparing for MTD, and a further one in five have received quotes for software that will make them compliant but are yet to purchase access to any. A tiny proportion say they have been part of the MTD pilot.

Small firms state that putting MTD-compliant software in place this year will cost £564 on average. Software fees come in the form of one-off charges or annual subscriptions.

The bigger the business, the higher the cost. Those with a turnover between £500,001 and £1m are set to be landed with a £872 bill for MTD-compliant software on average. For firms with a turnover of more than £1m, that figure rises to £1,019.

Despite government claims that the initiative will “make it easier to report”, only one in ten small firms believe MTD will have a positive impact on tax reporting and financial management processes. More than a third believe it will have a negative effect.

The new research also highlights the importance of offline accounting methods to small firms. Around four in ten use paper invoices, while close to a third use paper receipts and bank statements to keep track of their finances.

HMRC’s own research indicates that one in five firms that will be forced to comply with MTD on 1 April have never heard of it.

FSB national chairman Mike Cherry said, “We’re only three weeks away from the roll-out of MTD and small businesses are clearly not prepared for it. That being the case, the Chancellor must double down on his commitment to light-touch enforcement when he delivers the Spring Statement on Wednesday. Small business owners shouldn’t be punished for honest mistakes, made more likely by a rushed HMRC roll-out.

“Promises were made that MTD compliance would be affordable. Now many firms are finding themselves on the hook for hundreds of pounds for software. At a time when small business confidence is in the doldrums and wages, auto-enrolment contributions and business rates are rising more, costs and admin burdens are the last thing they need. They also have the small matter of Brexit to think about.

“While we’ve worked hard to ensure our members are aware of MTD, firms are finding it far more difficult, time-consuming and expensive to become compliant than was predicted by HMRC, not least because of a cumbersome registration process.

“We now need to see a full review of the MTD rollout and a guarantee that it won’t be forced on those below the VAT threshold until at least the end of this Parliament, in 2022.”