We’ve known for years that it is coming, so I was shocked when I recently discovered how many firms are still completely unprepared for the major shift in April in how the Government collects taxes from hundreds of thousands of businesses across the UK.
In a meeting with fellow accountants before Christmas, the discussion turned to Making Tax Digital (MTD), the initiative by HMRC to “revolutionise” the UK tax system and ultimately bring an end to self-assessment.
Though target dates for moving smaller firms and the self-employed onto MTD have been pushed back, the Government’s ambition to simultaneously increase its tax take while cutting down on costs has not changed. Digital is still coming, and from 1 April, all VAT-registered businesses in the UK are required to file their data through approved software that links directly to HMRC’s computer systems.
At that meeting representatives from 80% of the accounting firms on hand said their organisation was not yet ready for MTD. Words like “disaster” and “chaos” were used.
These are the professionals often asked by clients to be providing advice to the businesses that will ultimately be held accountable by HMRC for any failures to comply with the new system. But if accountants aren’t prepared, which chance do their clients have?
With offices in Belfast, London and Glasgow, we work with businesses throughout the UK, using the latest technology to help our clients make informed business decisions that improve profitability. This also means that virtually all of our clients are operating on cloud-based accounting systems that have them fully prepared for MTD for a number of years.
Unfortunately, that isn’t the case everywhere – and the situation I have described at my recent meeting of a group of accountants seems to be widespread across the country. In Scotland, I wouldn’t be surprised if half of this country’s VAT-registered firms, some 170,000, are fully-equipped to handle the new requirements being imposed by HMRC.
It would be easy to explain this away as a problem affecting only the smallest businesses being served by the smaller accountancy firms, but we are aware of examples that is not the case. For example I know of at a least one business generating as much as £100m in annual turnover, and which is looked after by one of the largest firms, that has yet to get its MTD house in order.
The issue here is often one of failing to fill in the gaps. Those bigger businesses have their own in-house financial teams. The external accountants might assume the internal team has taken the lead on MTD, while the internal team awaits guidance from their professional advisors, in what can involve complex systems.
Where the fault ultimately lies will not be among HMRC’s concerns. The business itself will be held responsible for any non-compliance, and will bear the cost of ensuing fines and penalties.
For some, there might just still be enough time to act before the new system comes into operation. Contractors who issue just one or two invoices per month, for instance, could likely get the necessary software embedded within a few days.
But quick fixes will be much harder to come by in fields such as the legal sector, where Ross Boyd Ltd works with a large number of clients. The intricacies of billing for legal work make it unlikely that a new software system could be selected and then made fully operational in less than three months.
In past periods of transition by HMRC, there has typically been a “window” or “soft landing” when it holds off on issuing penalties for a limited period of time. Those who fail to make the MTD deadline in April will hope for the same to happen again, but that is not a given. Either way, the time to act is now.
Ross Boyd is Director of Ross Boyd Ltd international business consultancy