The new online system, devised by HM Revenue and Customs, promises to make it easier for businesses to pay their taxes and manage their records but the implementation of Making Tax Digital has not lived up to the promise so far.
The plan to digitise the payment and recording of VAT returns has been in place since 2015, with a planned launch date for Making Tax Digital of 1 April 2019 for businesses with a turnover of over £85,000.
Under the new system UK businesses will need to update their VAT records digitally using software that is compatible with government and HMRC systems.
The current method of manual completion of tax returns online will no longer be accepted instead having to upload the documents electronically.
A pilot of the system was rolled out earlier this month for 500,000 businesses whose tax affairs were considered “up to date and straightforward” by HMRC.
Mel Stride, Financial Secretary to the Treasury, said: “HMRC is transforming the tax administration so that it’s more effective, more efficient and easier for taxpayers.
“More and more businesses use digital tools every day to help them operate – tax shouldn’t be different. This is a major step towards bringing VAT into the 21st century.”
Making Tax Digital causing problems for small businesses
Despite the bold promises up to a third of businesses remain unprepared for Making Tax Digital and nearly a quarter having never heard of the proposals for the changes to tax payments, according to research by the British Chambers of Commerce.
It estimates that 25% of businesses in the UK are still using manual or spreadsheet record keeping which would not be compliant under HMRC’s Making Tax Digital policy.
This could have particular issues for small businesses who are unable to afford to upgrade their accounting systems to one that works with Making Tax Digital, or for business owners who are less digitally savvy.
This could have a significant impact on businesses if it results in missed VAT returns.
Speaking at a finance bill sub-committee, Theresa Middleton, director of the Making Tax Digital for Business programme, said: “It’s fair to say that there are some concerns among professional bodies and businesses about how this will work in practice.”
She added: “Our approach to this has been to work with the software industry to make sure there are a range of products available at different price points, with different complexities to suit businesses using different processes – either on desktop, tablet or phone.
“The challenge for businesses is transitioning from their current way of making their VAT return to changing to a new way of doing it.”
HMRC remains confident that once businesses have moved to using software it will add up the expenses and the income more accurately.