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Accountants reveal cost of Making Tax Digital

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27th Feb 2017
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More than 80% of accountants surveyed by Thomson Reuters estimate the cost of Making Tax Digital (MTD) to individual small business clients will be more than £200.

The survey of 500 accountants revealed nearly half (46%) put the figure at somewhere between £200 and £500. 27% thought it would be between £500 and £1,000, while 9% estimated the cost at more than £1,000.

The cost of MTD has been estimated by various accounting and small business bodies, ranging from HMRC’s own figure of £280 up to nearly £3,000 per business.

In giving evidence to the Treasury Select Committee in October about the potential costs and savings expected to be generated by MTD Mike Cherry, policy director of the Federation of Small Businesses, suggested that MTD would cost businesses £2,770.

Andrew Tyrie MP, chairman of the select committee, has since called on the Treasury and FSB for clarity on the costs of MTD.

He said: “The compliance cost estimates are so far apart that at least one of them must be wrong. I have written to both the Treasury and the Federation of Small Businesses to ask for detailed supporting methodology for their estimates.

“If the FSB are right, the effects of Making Tax Digital would be crippling for many small businesses. If the government are right, businesses have something to gain in the longer term and one would expect them to be queuing up to join the pilot,” Tyrie added.

Seeking the truth

AccountingWEB tax contributor Wendy Bradley has also been seeking out the truth behind the figures quoted by HMRC around MTD costs and savings, including a Freedom of Information request for details of the computation and underlying data.

Tax campaigner and City University professor Richard Murphy has also focused on the questionable cost and benefit MTD calculations at a recent Lords committee.

According to Murphy’s analysis, when software costs are stripped out of HMRC’s £170m estimate of the extra cost to business of MTD, £103m is left to cover the cost of quarterly updates from 5.9m businesses - equivalent to £4.36 per update.

Using the national minimum wage as a benchmark, Murphy suggested HMRC was allowing 35 minutes to complete each update. “That is not plausible,” he told the committee. Based on his estimate that the tasks involved in filing each update would take around half a day, he estimated the cost to business of MTD would be £1.8bn.

In his evidence report Murphy also estimated that MTD compliance will cost at least £300 a year for unincorporated business and £600 for companies.

When it comes to the huge variation of cost estimates, one explanation is the lack of information and detail available on exactly what MTD entails.

Asked about the most pressing information being held back by HMRC, two-thirds (65%) of accountants surveyed by Thomson Reuters wanted to find out which of their clients will be exempt from MTD.

Mark Purdue, tax product manager at Thomson Reuters, said: “Our findings show that accountants are looking to HMRC to confirm the turnover exemption so that it is clear as to which businesses will be exempt from MTD, or deferred until 2019. In turn, this will allow accountants to plan for how they can advise their clients under the new MTD rules.”

The MTD exemption threshold is expected to be revealed at or after the Spring Budget next month.

Other pressing information accountants wanted detail on included 23% wanting to know taxable profit workings, and 10% about the availability of free software. 87% of accountants said they feel they needed more information on MTD.

The survey also threw up some other startling stats such as 51% of accountants still haven't spoken to clients about MTD, while three-quarters (73%) have called for a delay to the programme with just 11% of accountants feeling able to handle MTD themselves.

 

What do you think the cost of MTD will be to your individual clients?

Replies (57)

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Replying to C J EYRE:
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By kccounts
01st Mar 2017 21:41

I made tentative cost enquiries to a well-known software provider to be told I cannot buy the software, but can rent cloud space to record accounts at the special initial offer rate of £7 per month for the client and £7 a month for the agent. Seems like we can't OWN anything anymore.

As for printing hard copy why bother its all in the ether.

Thanks (0)
By Silver Birch Accts
01st Mar 2017 16:13

The OTS has just published its Review of VAT. There is now a stong link to MTD. The OTS is looking at reducing the VAT threshold to £20K, is the £10k MTD threshold going be say £20k. Forcing hundreds of thousands of businesses to register for VAT would demolish the idea of estimated quarterly submissions. There is a darker picture going on here and we are not being told. What is certain is that all these changes, certain and proposed, could have a devastating impact on the small business landscape and eventually the economy of the state.

Thanks (4)
Replying to Silver Birch Accts:
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By User deleted
02nd Mar 2017 16:27

We seem to sing from the same hymn sheet, Silver Birch. Comments I made elsewhere on Aweb;-

https://www.accountingweb.co.uk/any-answers/ots-bring-vat-threshold-down

Forever the cynic and, taking on board the bigger picture of MTD (the making tax difficult project) one could reasonably see the Vat registration threshold reducing down to £10,000? Or, am I looking for the conspiracy theory, which might not exist? Time will tell.

Extending the theme and, with MTD at the top of the agenda, at the moment, would it be too early for reference to me drawn, in next weeks Budget, to a general and substantial reduction in the Vat registration thresholds?

Thanks (1)
Replying to User deleted:
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By johnjenkins
02nd Mar 2017 17:03

There is no point in reducing the VAT threshold. The only way something like that might work is if you have all business register for VAT. That way HMRC would have their 1/4 figures and can then go on to put the smaller ones on RTI, which I'm sure is their intention.

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By johnjenkins
02nd Mar 2017 09:11

This is brilliant. The OTS, Office of Tax SIMPLIFICATION saying that business with turnover over £20K should be VAT registered. What a contradiction. You are right Silver Birch there is definitely something going on and it stems from getting rid of small business. Business rates is just one example.
If this carries on any decent negotiations for brexit will not save the Tories from annihilation at the next election.

Thanks (2)
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By txcjg
03rd Mar 2017 10:22

One thing not mentioned is account years. if the client has a year end 30 April 2018 then for 2018/19 only part of the first quarter would be relevant. Are HMRC going to change the basis to actual tax year rather than the present CY system for Self Employed?
When self assessment came in HMRC missed the ideal opportunity to change the tax year end to 31 March. They also brought in a further calculation to move the self employed from PY to CY basis.
With VAT a number of businesses quarter ends do not tie up with their accounting year. Does this mean 9 returns a year for these businesses?

Thanks (3)
Replying to txcjg:
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By johnjenkins
03rd Mar 2017 11:03

As I see it, come MTD, you can choose your own basis period. There will be no annual return therefore no need for an annual "year end". Quite what lenders will make of this will be interesting. I cannot see that annual accounts will not be prepared

Thanks (1)

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