The ability of small businesses to get their records up to scratch is likely to be the biggest stumbling block to Making Tax Digital, according to a poll of 1,000 accountants.
The results of the survey conducted by Thomson Reuters and AccountingWEB were revealed during AccountingWEB’s recent Practice Excellence Live MTD webcast.
Now that the initial consultation process has closed, the next big event in the MTD calendar will be Chancellor Philip Hammond’s Autumn Statement on 23 November. A current of “will he, won’t he?” speculation has been building during the past week around the possibility that the Chancellor might relax the MTD timetable in view of the impracticalities highlighted by professional bodies in their consultation responses.
The AccountingWEB/Thomson Reuters MTD survey adds weight to their calls, with detailed insights about the key issues facing accountants and their small business clients as the tax department readies its new online tax regime to go live from April 2018:
MTD survey: Practitioner responses (n=1,041)
|69%||Concerned about reliability of HMRC systems and data|
|60%||Have clients who do not have electronic systems in place|
|57%||Have clients who do not use computers or are digitally excluded|
|57%||Think MTD timetable is not realistic|
|54%||“My clients are not ready for digital reporting”|
|54%||Compliance work will be more time-consuming|
|49%||The onus will be on me to keep clients compliant|
|42%||I will not be able to charge for the additional work|
|42%||Estimate first year MTD costs to be more than £250
(47% unable to quantify costs yet)
Thomson Reuters tax product manager Mark Purdue noted that 45% of practitioners could see some benefits of MTD with the end of the 31 January bottleneck and improvements to client records. “Forty-four per cent think clients will keep more timely records,” he told the Practice Excellence Live audience.
“Clients may not have good records and this is an opportunity to straighten them up.”
But the overall picture presented by the survey challenged some of the government’s assertions that MTD would relieve administrative burdens on small business. “There are big concerns out there about how this is going to work,” Purdue added.
Practice Excellence Live panellist Rebecca Benneyworth acknowledged the scale of the problem. “Record-keeping is the big one,” she said. “As an accountant I can see that once you’ve got those digital records, then you’ve cracked it. You press a button for quarterly updates and so on.
“It’s like driving the car that’s going to run the race, but first you have to learn to run the car. And most of my clients are still using the horse and cart. That is a big jump.”
While the biggest obstacle identified by practitioners lay in the bookkeeping abilities of their small business clients, the survey identified worries that practitioners would end up carrying the can.
“The perception is that the onus is on the agent. If clients can’t cope, agents will have to pick up the slack,” Purdue said.
The survey showed that a significant number of practitioners fear HMRC’s digital tax initiative will impose new workloads for which they will not be able to recoup fees: 54% anticipated that compliance work would be more time-consuming, but 42% also responded that they would not be able to charge for the extra work.
In a challenge to claims of potential savings in the order of £85m-£250m for small businesses, 42% of the survey respondents estimated that the transition costs of moving to MTD would be more than £250 per business.
Software costs (1,037 responses)
|48%||Can’t say yet - details are still too sketchy|
|22%||£250-500 in the first year|
|19%||More than £500|
|8%||Up to £250 in the first year|
|2%||Not known - don’t have many of these clients|
|1%||Negligible - they are already using systems that should cope|
Practitioners also flagged continuing concerns about the accuracy of HMRC data (69%), and 57% felt the current timetable to launch quarterly reporting in the 2018-19 tax year is “unrealistic”.
Question 36 in the full MTD consultation asked whether the smallest unincorporated businesses that are not exempted from the regime get an extra year to prepare. Practitioner Jon Cooper addressed this point in the second “impact on practice” MTD webinar on 24 October, and urged HMRC to align the exemption with the VAT threshold.
Mark Purdue backed this stance with a huge majority of customer responses along the same lines: “Our recent surveys show there is real concern that clients will not be ready for quarterly updates – 80% of those surveyed supported deferring quarterly updates for those businesses below the VAT threshold.
“This would allow the focus of the first year to be on those businesses that should already have up to date records, allowing agents and HMRC insight into how the processes will actually work with a minimum of impact, before trying to introduce the trickier, smaller businesses into the regime.”
With such major changes on the table for accountants and their small business clients, Purdue warned practitioners not to be complacent. Polls have been showing that so far few practitioners have bothered to read the background documents.
“Our survey showed a reluctance to talk to clients without better information (47%), but accountants can’t just sit back and complain if they haven’t engaged with MTD,” Purdue said.
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