This week I’m on a rant about Making Tax Digital – because it is a humongeous change to accounts and tax as we know it- and most of those people it’s going to affect – haven’t cottoned on!

The MTD change is starting with the little guys – that’s you and me, which seems unfair to us, but from HMRC’s stand point is logical, as they need to get it right with people with relatively simple tax affairs, before moving onto the Amazon’s and Starbucks of this world!

At the moment, it’s all change from April 2018 for the self-employed and landlords with turnover of over £10,000 – that’s really not that much.  There is an outcry about this and everyone is lobbying HMRC to increase the threshold to slightly larger businesses with turnover equal to the vat threshold – as at least they are used to doing some kind of digital return already.  But at the moment we are stuck with the £10k cut off.

So if you have turnover or rental income of £10k very soon you are into reporting your results quarterly – and digitally – to HMRC.  Sending your receipts in a carrier bag to your accountant once a year (probably 7-8 months after your year-end) is just no longer an option.  Even sending then nicely analysed on a spreadsheet looks like it won’t do anymore.

So how are we going to do cope with MTD? The truth is – we just don’t know – as information from HMRC is so limited.

As an accountant I’m really busy dealing with my clients at the moment and I have plenty of “carrier bag” clients – whom I love dearly.  They don’t get accounts – why would they?  I don’t get plumbing! (no offence plumbers – but I really cant read a receipt when its been through the wash)

Do I have time to do their accounts 4 times a year rather than 1, and within a one month deadline?  Probably not.

Can I do it for the same fee?  Definitely not!

I am in the process of educating my clients and moving them onto cloud accounting packages and most of them making the switch do like them.  Most get that once they know what they are doing, it will save lots of time and give them up to date figures which they can use to make real time business decisions.

After all, what real use is a set of accounts 9 months after the end of your year, apart from telling you how much tax you owe?  With real time information, accountants can really add value to a business.

But most decent accounting packages come with a monthly subscription.  For some clients, the annual fee of that alone is about what they pay now for their annual accounts, so their costs are really going to increase.  Research shows the annual cost of MTD to a small business will be £1,250.

So whilst I get the logic, and it all sounds lovely in theory, HMRC need to step into the real world and consider the thousands of small businesses this is really going to affect.  We need the turnover limit increased and the start date delayed to give clients time to adapt to digital systems.

You can give HMRC your views before Nov 7 here  https://www.gov.uk/government/collections/making-tax-digital-consultations

Rant over.