HMRC needs to allow greater flexibility during the initial phase of its tax digitisation strategy in order to help smaller business owners deal with the changes, according to cloud accounting company, FreeAgent.
FreeAgent believes that although the current proposals for Making Tax Digital will be ultimately beneficial for the UK’s SME sector, there should be more help provided to the smallest unincorporated businesses so they can manage the tax digitisation switchover.
In particular, FreeAgent believes that smaller businesses should be given additional time to prepare for Making Tax Digital, rather than facing the same deadline as larger companies who will be better equipped to make the changeover.
In its official response to the government’s consultation over Making Tax Digital, FreeAgent recommends that all unincorporated businesses making less than £83,000 – the VAT threshold – should have an additional year to prepare before they have to adhere to the new digital tax regime.
It also recommends increasing the turnover threshold for the cash-basis reporting scheme to £166,000 – double the VAT threshold – to make self assessment easier for more UK businesses.
Ed Molyneux, CEO and co-founder of FreeAgent, thinks that Making Tax Digital is a great opportunity for business owners to have proper clarity over their business finances and be better equipped to calculate and pay their tax bills. But it is also a major piece of legislation that will have a significant impact on the UK’s micro-business sector.
Molyneux adds, ‘The government has ambitious targets in place for implementing its MTD strategy and getting people to start reporting their tax digitally, but I believe there needs to be more flexibility when it comes to smaller businesses. The average freelancer or micro-business owner doesn’t have the resources that a larger SME has to get themselves prepared for the switchover, and many will struggle to upgrade their processes in such a short timeframe.
‘We know that the very smallest businesses making less than £10,000 will be exempted from the scheme entirely, but we are now urging HMRC to help those in the next category up.’
Further reading on digital taxes
