What are the Impacts of Brexit on Making Tax Digital?

While HMRC was talking about Making Tax Digital (MTD) and its benefits to businesses it has been delayed by Brexit. The delay has resulted in HMRC failing to fully roll-out Making Tax Digital. Are there any other impacts on MTD or is the delay the only impact Brexit has had? This article aims to look at this and keep you up to date with MTD’s issues.

What is Making Tax Digital?

Making Tax Digital is a scheme which the British Government hopes will make it easier for businesses and individuals to file their tax returns. They will be able to file their tax returns online using a system which continually updates HMRC with their income.

The Delays to Making Tax Digital

Making Tax Digital was supposed to come into effect in April 2019. However, the British Government has come to the conclusion that they should put their plans on hold. This is to allow Her Majesty’s Revenue & Customs (HMRC) to focus on Brexit.

A recent letter to a number of tax professional was sent by HMRC and detailed their decision to delay MTD. The letter stated that the governing body would temporarily halt tax code changes and simple Assessment. The letter also went on to say that they have come up with MTD’s foundations which will allow them to revert back to the initiative at a later date.

Taking Time to Deal with MTD’s Issues

As we still do not know if Brexit will happen or whether the UK will leave with or without a deal, HMRC has been wise. However, they might be wise to take this time to get rid of the issues they have with Simple Assessment along with dynamic coding.

However, this is unlikely to be the case as HMRC has put MTD on hold for now. This may well mean that they’ll have to deal with the issues another time. This could result in even more delays.

Is Making Tax Digital Mandatory?

The Institute of Chartered Accountants in England and Wales (ICAEW) have recently stated that they do not think MTD should be mandatory. For the time being, only businesses that make more than £85,000 a year have to use the system. However, the plan is to ensure that every business (no matter their size) has to use MTD.

It was thought that more than 40% of businesses would be affected by Making Tax Digital. There was a concern that these businesses would not yet be aware of how their VAT would also be affected. In addition to this, there was a concern that those businesses that still use paper accounting would find the transition hard. This is because paper-based records cannot be used with MTD.

Those who have successfully used paper-based records for years might find the change to digital quite hard.

Imagine that you set up a business many years ago and you used paper-based accounting as that is how accounting was done. When you were given the chance to fill in your accounts online you chose not to. This is because you have always filled in paper-based accounts. Now you learn that HMRC insists that as your business earns more than £85,000 a year you have to make your tax digital.

While there is always a chance that MTD could ensure accounts are more accurate, there’s no reason to suggest that paper-based accounts are not accurate.

Businesses are not Ready

The Institute of Chartered Accountants in England and Wales (ICAEW) stated that many businesses might not be ready for the implementation of MTD. While the date has been pushed back from April 2019, it’s likely that businesses still won’t be ready when the time comes.

Members of the House of Lords Economic Affairs Committee have suggested that MTD should be pushed back 3 years. This could potentially be enough time for every business to hear about MTD and get all of their accounting systems sorted.

However, it’s thought that up to 40% of businesses have not yet heard about Making Tax Digital. This means that they would not have even considered changing the way they file their accounts. Not only is this a concern, but the members of the House of Lords Economic Affairs Committee are worried about the software. Their worries surround the ability to purchase or upgrade their accounting software.

The Cost of Making Tax Digital

The real cost of MTD for businesses is between £70 and £500 for software for those who use cloud accounting software. Those who use their computers to do their taxes might have to pay as much as £1,600. Finally, those who keep paper records could pay as much as £2,600.

This will inevitably be too expensive for some, particularly small businesses.

The members of the House of Lords Economic Affairs Committee have questioned why taxpayers have to pay so much money to file their taxes. There is no free option available and the Government should consider using one.

The Committee has suggested that HMRC does not implement the next stage of MTD until 2022 at the very earliest. This will allow businesses of all shapes and sizes to learn how to use MTD.

According to HMRC, more than 200,000 businesses have been contacted about MTD. However, this leaves another 1,000,000 businesses behind and in need of contact.

So far we can see that Brexit has delayed MTD as the government has put its plans on hold we do not yet know how long they will be on hold or if they will come into fruition soon after the UK leaves the EU. However, what we do know is that many businesses will struggle financially to deal with the cost and the switch.