The Chairman of the Treasury Committee believes further analysis should be made into the likely costs to small business owners for complying with quarterly reporting under Making Tax Digital.
Andrew Tyrie MP made the assertion due to the fact that estimations of the administrative costs by the Federation of Small Businesses (FSB) and HM Revenue & Customs (HMRC) differ greatly.
HMRC believes small businesses will incur initial costs of £280 per annum during the transition to digital tax reporting. However, the FSB estimates that it could be as much as £2,770 per business in the first year alone.
“There are huge differences between the FSB and HMRC about the administrative burden of Making Tax Digital,” said Tyrie.
“This is the heart of the matter. The FSB think that with Making Tax Digital, businesses might spend three times as much time on their tax obligations as they currently do.
“This could cost them around £3,000 a year in time, salaries and accountants’ fees. HMRC think that they will spend less time, leading to a small net saving.
“A comprehensive pilot should shed some light on which assumption is closer to reality.
“I have written to the Administrative Burdens Advisory Board to ask for a view on the basis of their members’ extensive business and accountancy practice networks.”
HMRC insists that by 2021-22, after Making Tax Digital has bedded in, small businesses could save up to £240m. Nevertheless, transitional costs are estimated to cost up to £870m for SMEs.
Mike Cherry, National Chairman of FSB, said in a recent letter to Tyrie that the average cost of tax reporting was around £84 per month for businesses.
“Over a year, a business will therefore spend £1,008 on average on tax reporting. The Centre for Economics & Business Research (CEBR) estimated that businesses would spend three times as long on their tax reporting each year under Making Tax Digital,” said Cherry.
“They based this multiple of three on the assumption that, although reporting will be completed four times as often, the Government’s literature makes a point of the simplification of the digital process, and they estimated that this would decrease the time spent on the reporting.
“Therefore, our figure of £2,770 is a scalable one subject to further information from HMRC being published. This additional time spent is scalable from the previously identified cost of annual tax reporting.”
Your local TaxAssist Accountant can work with you to prepare for when Making Tax Digital is currently due to be introduced from April 2018 for some businesses.
HM Revenue & Customs will not be offering software to help you report quarterly, so we have already partnered with Intuit QuickBooks to help make managing your accounting records easy, wherever you are.
If you would like us to help you through these changes then call us today on 0800 0523 555 or use our online enquiry form.