It’s the biggest change in tax administration for more than a generation, with millions of businesses across the country being required to manage and submit their tax digitally in quarterly updates to HMRC rather than a single annual tax return.
Unsurprisingly, it is one of the biggest talking points in the accounting profession, with many accountants currently deciding how to best prepare their clients for the new changes. At our recent FreeAgent Partner Summit, we spent a lot of time exploring the impact of MTD and discussing how the legislation is requiring accountants to begin educating and engaging their clients with the changes now - so they are ready and prepared in plenty of time for the switchover.
The good news for accountants is that many micro-business owners also seem to be generally optimistic about digital tax. A recent survey we carried out at FreeAgent among freelancers and micro-businesses found that just 11% of respondents felt negatively about the plans, while more than a quarter said they thought that MTD would make running their business easier. We also know that when micro-businesses are engaged with digital technology, they find it easier to deal with their accounts and tax - as, on average, our FreeAgent customers say that they save around seven hours a month compared to their previous bookkeeping method, while nine out of ten say that they feel more relaxed about their finances.
But despite this cautious optimism over the idea of digital tax, there is still some clarity required over the plans. Although the government launched six consultations into MTD last year and has unveiled some of the findings from them, it still has yet to specify exactly what information that business owners will be expected to file when providing their new, quarterly tax updates to HMRC. We are also still waiting to hear what the final threshold will be for determining whether businesses need to comply with the legislation.
This uncertainty has not gone unnoticed in the micro-business sector. While a fifth of micro-business owners we surveyed said they didn’t actually know what MTD is, a massive 84% of respondents said they didn’t think the government had provided them with enough information about it.
The 2017 Spring Budget takes place on 8 March and all eyes will be on chancellor Philip Hammond as he announces his latest collection of policies for stimulating the economy. However, I believe it is imperative that he uses this Budget to provide more information about the government’s digital tax agenda.
MTD represents not only a seismic change in the way that UK businesses will have to deal with their tax reporting and bookkeeping, but also a huge opportunity for accountancy practices to make it easier to work with clients and provide them with deeper insights and expertise over their finances.
With the MTD “public beta” testing phase beginning in April, and first wave of the “live” roll-out expected to commence 12 months later, time is of the essence for the government to clarify all of the remaining details about the legislation - including when businesses will have to comply with it, who will be exempted and how they will be expected to submit tax updates to HMRC. Otherwise accountants and clients risk being unable to navigate the changes successfully.
Ed Molyneux is CEO and co-founder of FreeAgent - who provide cloud accounting software for accountants working with contractors, freelancers and micro-business clients.
Download FreeAgent’s guide to introducing your clients to Making Tax Digital here.