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HMRC's digital tax reforms are costing businesses thousands more than expected

2-minute read

Lucy McNeill

21 February 2020

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Tax experts are calling for a review of HMRC’s Making Tax Digital reforms as it's revealed that businesses are paying more than estimated to adapt to the new digital tax returns process.

In addition, there doesn't seem to have been a drop in the number of tax return errors – and in many cases, they seem to have increased.

Skyrocketing costs for businesses

The Association of Taxation Technicians (ATT) conducted an online poll of over 1,000 businesses and agents, asking about their experiences of Making Tax Digital since its introduction in April 2019.

Since then, VAT-registered businesses and self-employed people with a turnover of £85,000 have been using specialist software to process their tax returns with HMRC.

HMRC originally estimated that the average implementation cost per business would be £109 pounds – but the ATT’s survey has shown that only 10 per cent of businesses and agents surveyed paid this amount.

In fact, the survey has revealed that 45 per cent of businesses have paid between £109 and £500 in order to adjust to the new reforms. A shocking 12 per cent of respondents revealed that implementation has cost them £5,000 or more.

Over half of businesses reported that productivity had also suffered as a result of the changes.

Tax return errors aren't being reduced

The core aim of Making Tax Digital is to make the tax returns process easier and more efficient for businesses and individuals.

However, almost 90 per cent of survey respondents said that the new process had not reduced the number of errors, while 70 per cent stated that it has had little impact overall. Many reported an increase in the number of errors during the process.

Calls for the government to undertake “a detailed review”

In order to ease adjustment to the new process, HMRC isn't imposing fines for late or incorrect filings for the first year after implementation, saying that it will take time before businesses are fully adjusted to the scheme.

A spokesperson for HMRC said: “Making Tax Digital for VAT is still in its first year and we completely understand that some businesses and their agents will need time to get used to the new system.

“We appreciate that while there are free products available, some businesses will have incurred software and training costs, but Making Tax Digital's enabling of digital records linked to HMRC’s systems will help to free up valuable time.”

Tina Riches, Chair of the joint CIOT and ATT Digitalisation and Agent Services Committee said: “Far from bringing benefits to businesses and the Exchequer, Making Tax Digital for VAT has so far created additional, costly obligations for most businesses beyond what was predicted by HMRC.

“The government should undertake a detailed review of Making Tax Digital for VAT, and determine any benefits, before rolling out Making Tax Digital more widely.”

What are your experiences of Making Tax Digital so far? Let us know by leaving a comment below.

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