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Accountants say small businesses will be hardest hit by HMRC’s tax changes

HMRC’s Making Tax Digital (MTD) initiative, announced in the last Budget, promised the end of the tax return and will, according to HMRC, “transform tax administration so it is more effective, more efficient and easier for taxpayers.’

In reality though, according to Corby-based accountants, Moore Stephens, the changes mean additional costs for taxpayers – with the biggest impact felt by small businesses.

Making Tax Digital sees a fundamental change in how tax reporting is managed in the UK. From 2018, every business, including landlords will need to use software or apps to keep their business records and to update HMRC on a quarterly basis. In addition to quarterly reporting, business owners will also need an annual review to confirm accounting adjustments and submit final year-end figures.

Pete Simons, Tax Partner at Moore Stephens said: “The ongoing rhetoric from HMRC is that MTD is intended to be a cost-saving process for business, but in reality, no matter how they try to spin it, the proposed changes mean more information being submitted by taxpayers more regularly than previously and inevitably, additional costs for small businesses.”

Businesses that don’t currently keep records online (and this tends to be small, owner managed businesses) will be required to purchase new software and hardware in order to meet the government’s requirements. For some businesses this may result in a significant capital outlay. Staff will need to be trained to use the new systems – which, again, is another cost to the business.

Fundamentally, partially automated digital data bears the same risks as manually inputted data, i.e. if it is incomplete and inaccurate, more time will be spent checking and correcting it – another additional cost for the taxpayer.

There are practical considerations too. The Government’s own consultation documents admit there are 22 per cent of businesses without an internet connection. Where a business cannot reasonably access the internet, the Government must ensure they are excluded from the requirements.

Pete added: “Although there are benefits to the proposed changes, there is a real risk that the process may prove too onerous for all those involved and lead to an unnecessary compliance burden for small business owners. We have fed our concerns back to HMRC and are asking them to consider providing grants and other funding to businesses to allow them to make the required infrastructure changes and to defer the introduction of the scheme to give small businesses time to prepare.”

Moore Stephens Chartered Accountants is based at Oakley House, Headway Business Park, 3 Saxon Way West, Corby, NN18 9EZ, telephone 01536 461900 or visit www.moorestephens.co.uk/eastmidlands

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