I am sure that you know by now that the government has decided that their plans for Making Tax Digital were perhaps a tad rushed and consequently it’s better that we have another year to prepare for this seismic shift, which my friends at M&S tell me is the biggest change in the tax system since self-assessment.
Of course, this gives everyone, businesses, HMRC and those companies seeking to profit from selling us the new software we’re all going to have to use, far more time to get things right. That is a good thing. But…
On the other hand, the government still seems to be insisting that the cost to everyone of this will be tiny. Below, I reproduce what the government website actually says…
It is also expected that businesses will incur transitional costs in moving to the new arrangements. Our current estimate is that the transitional costs average about £280 per business (in their year of transition) over the period 2017 to 2018 to 2020 to 2021.
The costs are likely to cover:
- time spent in familiarising themselves with the new digital tools and quarterly submission of information
- purchase of new apps and upgrading existing software. This will depend on what free software is available from the market, and take-up
- a small minority of businesses may need to purchase new hardware or upgrade existing hardware
- additional accountancy / agents costs
They go on to say:
For those business that have limited existing digital capability and/or need to purchase hardware and software, costs may be higher. HMRC anticipates that a significant majority of businesses with turnover in excess of the VAT threshold will already have the necessary digital tools to operate MTDfB.
A few paragraphs further on, we discover that they are not avoiding the issue of those small businesses (the majority I believe) that don’t have any great internet capability:
Small and micro business assessment: these changes will improve the quality of record keeping, reducing the likelihood of mistakes (and attendant risk of unwelcome and costly HMRC compliance interventions) and help businesses to manage their cash flow more effectively. In the longer term, we anticipate a reduction in administrative burdens for these businesses.
The government recognises by their very make-up that this group includes businesses which are likely to be more affected by one-off transitional costs and digital capability issues, and may therefore find it more difficult to move to the new digital requirements.
While the government recognises the impact on this group, there is no attempt at present to quantify the cost to these businesses. The focus is on the anticipation of “a reduction in administrative burdens for these businesses.” That’s fine, but what will it cost them?
There is no doubt in my mind that the figure that government is trying to associate with this measure is the £280 ‘one-off’ one. That, like the much cited £240 extra cost of the NIC fiasco, seems like a relatively trivial amount of money. But for a small businessperson, it may be the cost of the flight for the one week’s holiday that is all the time off they can afford, and during which they can re-charge their batteries and stay sane.
To be fair, we are having a period of grace (OK, a year) for those who fall below the VAT threshold to get used to the idea and prepare for it. However, what is vital is that the government is honest about the cost of this to small businesses. As I have written previously, the laws of supply and demand are not difficult to understand, even for a Chancellor. Increase the demand (in this case by law) and the price will rise. No wonder XERO are advertising on the radio so much just now – of which more in the next blog!
Alastair Blair, thePotentMix