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The majority of small businesses and landlords anticipate consulting an accountant for support in meeting the requirements of digital reporting under Making Tax Digital with nearly half of taxpayers (40%) calling for extra guidance, HMRC research has shown.
A survey of 2,900 small businesses and landlords, with a further 40 follow up interviews, found that 72% were most likely to ask an accountant/tax agent for advice and support about Making Tax Digital, compared to 20% who would use the HMRC website, 13% the HMRC helpline, and 5% family and friends.
Taxpayers wanted guidance on how to prepare for the new requirements (cited by 40%), consistent with the low levels of awareness about Making Tax Digital and what it involved, while 18% wanted reassurances that they were carrying out requirements correctly and 16% wanted guidance on using software (16%).
The research exploring attitudes, behaviours and digital capability relevant to Making Tax Digital was conducted a year ago. At the time, it was expected that businesses and landlords with an income of at least £10,000 would be required to comply with Making Tax Digital, but since then requirements have changed and businesses will now not be mandated to use the digital system until April 2019 and then only to meet their VAT obligations.
At the time of the survey fieldwork, between September and November 2016, 70% customers were unaware of the requirements to use software or to send quarterly updates to HMRC.
Despite this limited level of awareness, 70% expressed willingness to comply with the Making Tax Digital requirements, albeit at the latest time possible (43% would make changes to their process only once the changes come into effect).
A quarter (25%) said they would only comply with the requirements if there were penalties and 15% would choose not to submit quarterly reports, if it was cheaper to pay a fine than comply.
The survey found that use of spreadsheets or paper methods for record keeping was more widespread than software. Use of software or apps on a smartphone or tablet for any tax-related tasks (such as record keeping, calculating tax payable, and submitting returns to HMRC) among businesses and landlords was relatively low at 26%.
Software use was highest among those liable for corporation tax (52%) and lowest among landlords only (13%). The main reason for not using software was a perceived lack of need, either because the business or landlord activities were simple and the processes in place were ‘fit-for-purpose’, or because the agent handled all of the taxes. In addition 20% were not using software because they lacked confidence with technology.
The qualitative research, which focused on non-software users, identified taxpayers who had an emotional attachment to their existing method of record keeping. These individuals had developed and refined their record keeping practices over a number of years, and believed that they were providing correct information to HMRC. They questioned the value in changing processes which were working well and met HMRC requirements.
However, 68% reported being comfortable with using technology to manage their business/landlord finances. Those least comfortable were sole proprietors and partnerships below the VAT threshold, who tended not to use software as their tax obligations were simple.
Access to digital devices that would enable taxpayers to use software under Making Tax Digital was also high: 95% had a computer, laptop or tablet, 96% had internet access, and 68% used the internet at least daily.
However, 19% who had internet access for work self-reported that their internet (speed and/or reliability) was poor. They were concerned that they would not be able to send quarterly updates to HMRC or access HRMC guidance about Making Tax Digital, such as YouTube videos. The qualitative research with non-software users also identified that some did not feel comfortable using technology for business because they were worried about data security.
Views on how easy or difficult it would be to comply with Making Tax Digital requirements were mixed. While 40% reported it would be easy to use software to keep digital records and to submit quarterly updates, a third believed it would be difficult.
Making Tax Digital for Business: Survey of small businesses and landlords is here.
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