Business understanding of the Making Tax Digital extension is worryingly low

24 June 2022

It has been reported that half of businesses did not understand their reporting obligations under the extension of Making Tax Digital for VAT, even at the start of this year.

HMRC research and analysis: Monitoring businesses’ awareness of Making Tax Digital revealed that understanding of the specific requirements of Making Tax Digital was lower than general awareness. The latest HMRC research showed that:

  • only 51% of businesses aware of Making Tax Digital by the term or concept were able to recollect at least one correct requirement, 
  • 12% provided only incorrect responses 
  • and a further 37% could not think of any requirements at all (either correctly or incorrectly).

This low level of understanding was a concern, despite HMRC communications to affected parties over the last six months and the close proximity of the research to the April 2022 mandation date.

 

The first payments through MTD for VAT for businesses below the £85,000 VAT threshold are due from July 2022, so it will only be then that HMRC will be able to assess the level of compliance.

 

Less than four months before MTD for VAT become mandatory for all businesses, 20% were still using paper records to report their VAT. These businesses were also unlikely to be using a specialist tax adviser or accountant. Businesses in the agriculture, forestry and fishing sector and those in Northern Ireland were overrepresented among those using paper-based methods for keeping business records.
 

Background to Making Tax Digital

In July 2017, HMRC announced that all businesses and individuals will have to file their accounting information digitally.

From April 2019, businesses above the VAT Threshold will have needed to keep Digital records and from 1 April 2022, MTD for VAT will apply to all VAT registered businesses regardless of the level of turnover. MTD for Income Tax should become law from 6 April 2023 and MTD for Corporation Tax is likely to be mandated April 2026. It is a significant change for many of us and means the end of the annual tax return to be replaced with a digital tax account where all your information will be stored in one place.

This change in the way HMRC wants information from tax payers means that you may need to move from your existing desktop or manual record keeping and onto an online accounting package. The good news is we are certified in the installation and operation of Online Accounting software which is digitally compliant and specifically designed for small and medium sized business.

If you would like to know more about the advantages of going digital, please contact your client manager, or call the office on 01332 207336.
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