Business In News
As small business owners in the UK face an impending recession and challenging business landscape, competing priorities are holding back compliance with Making Tax Digital (MTD) for VAT, according to new research.
It’s now just one month until HMRC’s online VAT portal closes on 1 November 2022; for non-exempted VAT-registered businesses who will no longer be able to use the existing VAT online account to file quarterly or monthly VAT returns. This will be applicable to all VAT registered businesses unless an exemption has been granted by HMRC. If they are still not compliant with Making Tax Digital by that date, these businesses risk paying fines from 1 January 2023.
Despite the impending deadline, two in five eligible small businesses surveyed said tackling rising costs is a greater priority than compliance, with a further 28% saying tackling late payments and hiring new staff are more important. Meanwhile, less than half of UK SMB owners said they have a good understanding of MTD for their business.
Compliance and understanding of rules remains low
Most eligible businesses should have already signed up, yet two in five VAT-registered small businesses surveyed are still not compliant. Lack of awareness appears to be the main cause: less than half knew that all VAT-registered businesses are eligible, and just 38% knew the correct timeline for compliance.
Encouragingly, of those not yet compliant more than half are planning on taking steps to address this. But with only 46% of small businesses aware that MTD-compatible software is required for compliance, despite this being a key part of the legislation, there is clearly a long way to go.
Focusing on compliance now will save time and money later – both by avoiding fines and penalties, and by making administrative savings. Two-thirds of those surveyed believe that Making Tax Digital is a cost-saving measure in the long-term, with half of these agreeing it saves company time and resources as it’s quicker and more efficient than traditional VAT returns.
Free training and education needed to help small businesses get compliant
Overall, small businesses who are already compliant think free training – either from the government, software providers or accountants – would help more to become compliant with MTD. Others suggest more education around what MTD is and the benefits and the consequences of non-compliance would be most effective.
Ultimately, among those who are already compliant, the top reason for signing was up because they knew it was the right thing for their business – demonstrating how important it is that small businesses understand how MTD can benefit them.
“What this research shows is that while education and awareness of the impact of Making Tax Digital remains crucial to compliance, it is only one part of the puzzle,” said Nick Williams, UK Product Director at Intuit QuickBooks, who commissioned the research of UK SME’s. “We know that MTD can help SMB owners free up time and resource to focus on revenues, growth, and new products and services – as well as tackle rising bills, late payments, staff shortages, and other pressures.
There are also longer-term benefits to having MTD compatible software in place, that also offer financial management functionalities such as real-time insights into financial performance, automated forecasting and streamlined payroll. But many small business owners simply don’t have the information or the right tools to comply. With one month to go, it’s more important than ever that SMBs prioritise finding the right tools to become compliant as fast as possible.”
Williams goes on to say: “The fast-approaching portal closure is an urgent wake-up call. Small businesses have asked for support from software providers, accountants, and the government, so we need to focus on making the right tools and advice available to them. SMBs shouldn’t underestimate the role of accountants who are well-positioned to provide advice and support during this critical time. 40% of SMB owners see their businesses growing in the next five years – but with the right technologies to achieve compliance and better manage their finances long-term, we can make this proportion even higher.”
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