I run a small accountancy business from my home filing between 150 & 160 tax returns a year. I have one client classed as a small business, but the rest are all micros. The Making Tax Digital proposals will be a minor inconvenience for my one small client, but for the micro clients it's going to cause major problems.
I expect many will look to me to deal with it for them. Normally I would be happy to assist, but the government proposals are going to make that very difficult if not impossible.
Firstly, when the new bookkeeping requirements start I will have a full year's accounts and tax returns to deal with relating to the previous tax year. As I already operate close to capacity that will leave minimal time available to deal with current year MTD digital bookkeeping issues as well.
Secondly, as small mainly unincorporated businesses most of my clients have 31 March or 5 April year ends. So if they all end up with the same quarterly bookkeeping stagger with just 1 month to file I am going to be left with an impossibly uneven workload.
To my mind there needs to be a more gradual transition to the new system. This could be achieved fairly easily by exempting micro business from the new system if they have turnovers under £50,000, then dropping the limit to £40,000, and £30,000 in subsequent years.
Personally, I believe the current £10,000 proposed limit is too low and should be raised significantly anyway.
Also, there needs a to be a better way of spreading the quarter ends. Even allocating quarter ends randomly or on an alphabetic basis would be better than having the vast majority working to March, June, September & December.
A longer filing window after the end of the quarter would also help, and I see no justification for limiting the review and finalisation process to 9 months. Currently we have almost ten months to the 31 January and there is no reason to think the finalisation process will be any quicker or easier after the MTD changes.
Finally, there is a problem with some taxpayers adopting the cash basis that I feel should be addressed. For a taxpayer earning taxable profits of say £12,000 a year, switching to the cash basis is disadvantageous if they have stock and capital allowances claimable of say £5,000. Having to claim these allowances in full reduces taxable profits to £7,000, effectively wasting £4,000 of allowable expenditure which would be covered by personal allowances anyway.
This issue could be resolved by allowing the unrelieved claim to be carried forward and set against the next available taxable profits. Given that the wasted expenditure can be disproportionately large in comparison to profits, the current system is far from fair on low income taxpayers.
I'm not suggesting these proposals are perfect, but they might help make the new system more workable for micro businesses - and their accountants.
Further comments on this would be welcome, also any suggestions as to how to get idea such as this implemented?