Julia Irvine 11 Mar 2019 02:14pm

SMEs find MTD compliance complicated and costly

Some companies are facing bills of more than £1,000 to make sure they are using software that is Making Tax Digital for VAT compliant

Research by the Federation of Small Businesses (FSB) ahead of the MTD implementation date of 1 April found that on average small companies will have to pay out £564 in software fees either as one-off charges or annual subscriptions.

The cost rises to an average of £872 for companies with a turnover between £500,001 to £1m and to £1,019 for companies with a turnover of more than £1m.

The cost of compliance has angered Mike Cherry, the FSB’s national chairman. “Promises were made that MTD compliance would be affordable,” he said. “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.”

The FSB’s findings also contradict HMRC research published last month, which showed that businesses were well-prepared for the deadline. The federation found that 50% of small businesses are not ready to comply with the scheme. Over a quarter (27%) have not even started preparing for MTD while a further 23% have received quotes for software that will make them compliant but haven’t bought it yet.

In contrast, HMRC’s research, which was carried out by independent consultancy IFF Research, shows that 81% of mandated businesses were aware of the campaign, 93% already used digital record-keeping and 79% were already using software or apps for keeping business records.

Furthermore, 83% of those that were aware of MTD had already started to prepare for the change, while 62% of them did not foresee any barriers to implementing it.

Cherry prefers to believe the FSB research and called in government to ensure a soft landing. “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.”

He added that although the FSB had worked hard to promote awareness among its members, the reality was that SMEs are finding it “far more difficult, time-consuming and expensive” to become MTD compliant than HMRC predicted.

He wants government to review the roll-out and guarantee not to force businesses under the VAT threshold to participate until at least the end of this parliament in 2022.

This is particularly important, given that 37% of small businesses use paper invoices, while 29% still use paper receipts and bank statements to keep track of their finances.

Last month, Treasury financial secretary Mel Stride told the House of Commons that HMRC was aware of the concerns and during the first year of mandation would not start issuing penalties to businesses unless they paid their VAT late.

He reiterated the government’s stance over the weekend, telling the Sunday Times, “It will be light touch. Where companies have made genuine mistakes or haven’t quite got it right for innocent reasons, we won’t come down like a ton of bricks. If someone has a genuine reason why it hasn’t been done properly, that’s in the category of ‘We’re here to help.’ ”