More than one third of UK SMEs unsure how Making Tax Digital will affect them
More than a third of UK SMEs are unsure how they will be affected by Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) – the next phase of the Government’s flagship plans to digitise tax for businesses.
In a survey conducted by cloud accounting firm FreeAgent, 38.9% of small business owners said they did not understand anything about the new legislative changes, which will be introduced in 2024 and will change the way millions of business owners and landlords report their earnings to HMRC.
MTD for ITSA is the second phase of the UK’s wider Making Tax Digital (MTD) legislation, which aims to give the UK “one of the most digitally advanced tax administrations in the world”. It follows the successful implementation of MTD for VAT – the first stage of the legislation that was introduced in 2019 and is due to be expanded in 2022 – which requires VAT-registered businesses to keep digital records and use software to file their VAT submissions.
The FreeAgent research found that one in nine (11.4%) respondents had never even heard of MTD, while a further 11% said that, while they were aware of MTD, they didn’t understand anything about it in general. In contrast, just 6.5% said they were confident that they understood how the next stage of MTD would affect them.
Many SMEs have also highlighted a lack of clarity about MTD as the reason for their uncertainty, with more than two-thirds (66.7%) saying that the government had not provided enough information about the legislation and the effect it will have on small businesses over the coming years. Just one in ten (10.4%) said that they thought that the government had done enough to explain MTD.
The survey also revealed a general dissatisfaction with how SMEs are currently taxed in the UK, with the overwhelming majority (79.5%) of respondents saying that they thought the tax system should be simplified further in order to help small businesses. In addition, it found that many are unhappy with the way that annual tax reporting is currently structured, with less than one in five (19.7%) saying that they wanted the tax year-end to remain as April 5th. Others said they hoped that the Office of Tax Simplification would recommend changing the tax year-end to March 31st (favoured by 28.7% of respondents) or December 31st (the choice of another 28.7%) instead.
Roan Lavery, CEO and Co-founder of FreeAgent, said: “Making Tax Digital represents the biggest overhaul to the UK’s tax system in more than a generation, but it’s clear that there’s still a lot of work to be done to get small businesses up to speed.
“This year, more businesses are coming under the umbrella of MTD for VAT, while millions more will be impacted by the arrival of MTD for ITSA in 2024. These are hugely important changes to the way that businesses will need to keep their financial records and file their tax returns, but there are still a significant number of people that have never even heard of MTD, let alone understand how it will affect them.
“It’s therefore vital for the government – alongside business advisors, accountants and software providers – to pick up the pace and make sure small business owners are given all of the information they need to be fully aware and confident about MTD in the months and years ahead.”