On 11 December 2017 HMRC published a survey of the attitudes of small businesses and landlords towards the requirements of the Making Tax Digital (MTD) changes to be introduced in the UK. This research commissioned by HMRC involved a survey of 2,900 small businesses and landlords followed by in-depth interviews with 30 businesses identified as being in need of additional support to engage with MTD. The survey was carried out between September and December 2016.
The MTD system aims to provide a streamlined online process for maintaining tax records and providing information to HMRC. Under MTD many businesses will eventually be required to file quarterly tax returns online. These taxpayers would have an overview of all their tax affairs in one place, making it easier for them to offset overpayments on one tax against liabilities on others. Analysis of the information provided by taxpayers would enable HMRC to more easily detect non-compliance and would therefore reduce their administration costs.
When the survey was performed it was expected that businesses and landlords with income of at least GBP 10,000 would be required to comply with the MTD rules. However the timetable for introducing Making Tax Digital has since been changed to give businesses more time to adapt to the changes. Under the revised timetable businesses with a turnover above the value added tax (VAT) threshold (currently GBP 85,000) will be required to keep digital records for VAT purposes from 2019 onward. Digital records for other taxes would not be required from business until 2020 at the earliest.
Businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system – it will not be compulsory for them but they can choose to comply voluntarily.
The survey found that currently 74% of the businesses and landlords surveyed looked for help with accounts and tax from an external accountant. Around 21% managed their own tax affairs while a small number either used an in-house accountant or were helped by a family member or friend.
The external tax agents were used to calculate tax payable for corporation tax (88%); income tax self-assessment (68%) and VAT (34%). Fewer than 20% of the businesses and landlords surveyed used external agents for record-keeping. When asked about their experience of keeping records, calculating the tax payable and completing tax returns 87% found the activities straightforward. The majority were recording their transactions in real time or at least quarterly. Of those taxpayers on income tax self-assessment only 19% did all their record-keeping at the end of the year.
The use of spreadsheets or paper methods for record keeping was more frequent among the businesses surveyed than the use of software. Only 26% used software apps on a smartphone or tablet for tax-related tasks. Around 52% of the businesses subject to corporation tax used software but only 13% of the landlords surveyed were using software. Generally software was not used because there was no need, but around 20% of those surveyed admitted to lacking confidence with the technology.
The businesses least comfortable with using software were sole proprietors and partnerships below the VAT threshold. However 95% of those surveyed had a computer, laptop or tablet, 96% had internet access and 68% used the internet daily. Of those with internet 19% said that their internet access was poor and these were concerned that they would not be able to send quarterly updates or access HMRC online guidance. Some were worried about data security.
At the time of the survey around 70% of those surveyed were not aware of the proposed requirements to send quarterly updates to HMRC. Despite this around 70% of those surveyed expressed willingness to comply with the proposed system. Around 25% stated that they would only comply if there were penalties for non-compliance. Around 15% would choose not to submit quarterly returns if it was cheaper to pay a fine than to comply. These taxpayers pointed to the potential burden in terms of compliance time and fees for external agents.