Only a fraction of UK businesses have registered for the new Making Tax Digital regulation ahead of the 1 April deadline, according to new figures
One in 10 small businesses are still keeping paper records, seven months after the introduction of Making Tax Digital (Credit: Pixabay)
More than a million businesses are yet to register for Making Tax Digital (MTD) ahead of next week’s deadline, according to government figures.
Only 55,250 businesses have signed up for MTD out of the 1.2 million businesses that HMRC says will be mandated to switch to the new system by 1 April.
The plan to digitise the payment and recording of VAT returns has been in place since 2015 but companies have been slow to respond to the upcoming changes.
As of last month, only 4% of businesses had registered for the government’s flagship tax policy.
HMRC has claimed that thousands of companies have signed up each week but these latest figures, revealed via a Freedom of Information request by business cash flow software company Float, show the total has only increased to 4.6% of businesses.
Float co-founder and CEO Colin Hewitt said: “The Making Tax Digital deadline is fast approaching, and the vast majority of businesses are still unaware of what is required of them.”
Statistics relating to Making Tax Digital deadline
Of the 55,250 businesses that had registered for MTD by 18 March, HMRC’s figures said 13,427 had been signed up by “agents” – meaning the majority had registered independently.
This is despite the fact that 88% of VAT-registered businesses with a turnover above the VAT threshold use an external agent to manage their tax affairs.
Only 1,679 agents have signed up their clients to MTD so far – while HMRC estimates there are 72,000 agents acting for clients in the UK.
This suggests that only 2% of accounting firms have taken proactive steps to prepare for MTD and register clients.
HMRC estimates there have been 3,000 registrations each day, meaning that if businesses continue to register for MTD at their current rate, only 402,000 more companies will have signed up by 7 August, when the first digital quarterly VAT returns are due for submission.
Mr Hewitt added: “While many businesses will have heard of MTD, they are busy running their businesses, and often rely on their accountants to communicate what they need to do.
“Sadly, many accountancy firms are still very much reactive rather than proactive, and won’t have done more than sending a few emails, which will probably be sitting buried in inboxes across the country.”
How is HMRC preparing for the Making Tax Digital deadline?
The initial roll-out of MTD will only affect companies that have a revenue of over £85,000, with the scheme being extended to smaller businesses over the coming year.
HMRC has said it recognises that businesses will take time to switch their accounting software and adjust to the new requirements.
An HMRC spokesperson said: “1 April is not a cliff edge for sign-ups – the first tax returns for most businesses under the new system won’t be due until August at the earliest.
“We recognise that businesses will require time to become familiar with the new requirements.
“During the first year, we will take a light touch approach to penalties. HMRC will not issue filing or record keeping penalties where businesses are doing their best to comply with MTD.”
In a separate statement, HMRC claimed that 83% of the companies familiar with MTD had begun making preparations.
Mel Stride, financial secretary to the Treasury, said: “In a world where businesses are already banking, paying bills and shopping online, it is important that the tax system moves into the 21st century.
“Making Tax Digital gives businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs.”
Estimated financial impact of Making Tax Digital
A report by Volterra Partners and Intuit QuickBooks predicted a £57m windfall for SMEs following the switch to digital accounting software required for MTD.
Mr Hewitt added: “Many businesses are using MTD as an opportunity to finally move from legacy software or spreadsheets to a fully fledged cloud accounting solution, and this can take time.
“So, businesses shouldn’t look at MTD as a threat or a burden.
“It’s an opportunity for businesses to modernise their accounting and bookkeeping practices, a task that many businesses need to do urgently anyway.
“Sometimes there needs to be a line in the sand, a catalyst that forces change, and MTD is exactly that.”