Blogs/Vlogs

The likely cost to businesses of Making Tax Digital

7 March 2017

HMRC are facing increased pressure to provide detailed information on the additional costs businesses will incur when Making Tax Digital comes into play.

As part of the Government’s digital tax proposals, starting from April 2018, all businesses with a turnover of more than £10,000 will be required to update their tax information on a quarterly basis.

In October 2016 the Federation of Small Businesses (FSB) gave evidence to the Treasury that stated the change to quarterly digital reporting is likely to result in additional costs of £2,770 per business per year.  However, the Treasury estimated that this cost is likely to be no more than £280.

In a recent publication, the Treasury states that Making Tax Digital will impact approximately 3.3 million self-employed individuals (including 900,000 landlords), 1.6 million companies, over 400,000 ordinary partnerships and round 600,000 businesses with income from different sources, for example,  self-employment and property.

Whilst it does acknowledge that businesses will incur additional costs in transitioning to the new arrangements, including training requirements and software updates, the Treasury are suggesting that savings will start to be made from 2020/21 onwards.  It contends that once businesses have transitioned to digital record keeping,  and are providing quarterly updates to HMRC, there will be an overall reduction in the reporting cost burden when compared to the current once-a-year reporting requirements.

HMRC expects the introduction of Making Tax Digital to raise an additional £945 million in tax revenues by 2020/21, with this rising to £2 billion by 2021/22.  This will be achieved by closing the ‘tax gap’ caused by reporting errors in the current system which it says the new system will eradicate.

Should you have any questions about this blog or about Making Tax Digital, please contact Sheila Berry.

Let's talk! Send an enquiry to your local UHY expert.