Over 40% of UK businesses that will be affected by Making Tax Digital (MTD) for VAT are unaware of the initiative, according to research by ICAEW.
A quarter of all UK businesses are still using a paper based accounting system and this will not be permissible for MTD for VAT.
From the beginning of April 2019, MTD for VAT will become compulsory for VAT registered businesses making annual tax supplies of over £85,000.
Currently many UK businesses enter figures for their quarterly VAT return on the government’s GOV.UK website. This will change in the future as VAT registered UK businesses within the scope of MTD will have to use accounting software to complete their VAT returns.
ICAEW’s technical tax manager Anita Monteith said: “We continue to fully support HMRC’s ambition to increase the use of digital technology, but we are concerned that based on these results many businesses are not going to be ready for implementation in April 2019.
“The lack of awareness among businesses about MTD is of concern and needs to be addressed: the communications on MTD do not appear to be getting through to VAT registered businesses. We would like to explore with HMRC what more we as business advisers we can do to help. It is also clear that even among businesses that are aware of MTD for VAT, many of them have not started to prepare to implement it.”
Despite the lack of awareness, there has been a significant increase of businesses moving away from paper based systems since 2016. Overall, 38% of UK businesses use accounting software for keeping their accounting records.
Montieth concluded: “We would like to explore with HMRC what more we as business advisers we can do to help. It is also clear that even among businesses that are aware of MTD for VAT, many of them have not started to prepare to implement it. Given the need to review existing systems and potentially evaluate, purchase and test new software, this is a worry.
“We want to help make MTD a success and also ensure that businesses get this right, but time is running out. MTD for VAT is a major change in tax administration and it is important for the UK tax system that it is a success: this is too important to be rushed.”
By Mishelle Thurai