619 - Half Time for Making Tax Digital: Are Businesses Making the Switch?

SPEAKER_1 (0:01)

Welcome to Modern Mindset, the show that picks the brains of the world's leading minds to help you unlock yours. Decoding the beliefs and strategies of global experts to give you an updated mindset to make the most of modern life.

Rory McGowan (0:28)

This is Modern Mindset, the show that picks the brains of the world's leading minds to help you unlock yours. My name is Rory McGowan, and believe it or not, we're already halfway through the current tax year. And for many small businesses, landlords and sole traders, that means halfway through their time to make tax digital.

The deadline for all VAT-registered businesses to turn their paper-based receipt-keeping into a digital format is next April. And the take-up has been good, with nearly 50% of eligible businesses having completed their making-tax-digital transition by August. But that still means that the other half of businesses still need to make that switch.

To talk more about how businesses are making the transition and what help is available to them, I'm joined by Rob Thomson, the head of tax and planning at Affinia, who are a large accountancy firm here in the UK. Rob, thank you very much for joining me today on the show.

Rob Thomson (1:22)

Hello, Rory, and thanks for having me on.

Rory McGowan (1:25)

No, no problem.

I painted a bit of a picture there at the beginning, with around 50% of businesses halfway through the tax year, having made the transition to making tax digital. But can you give me a little bit more about the context here? What does it look like for many sole traders and landlords on the ground who are currently making this transition?

Rob Thomson (1:48)

Absolutely. So from research Affinia has carried out, we found some clients and taxpayers have struggled a little bit with making tax digital or MTD. Whereas those that have prepared for it, have fared much better. So from our analysis around 4 in 10 who submitted the first quarterly report for MTD for income tax, found that there was not only more admin involved in this first update than they expected, but it also took slightly longer than they had initially anticipated. Now, this comes as no surprise given it's still relatively new to people, and I would expect once the process becomes more familiar, for our clients and your listeners, it will reduce the burden going forward.

A similar number also needed more support than they expected. Now, as you mentioned, the statistic we've got comes from part of a population that did submit the first quarterly return, and 50 percent of taxpayers required to do so actually missed the deadline. So this really underpins the importance of getting light-leveled support from an expert, not just from getting it started, but also supporting the business on an ongoing basis.

Rory McGowan (3:03)

Well, making tax digital, Rob, is supposed to make this all simpler. I can't think of a system, a lot of things have moved digitally already, and I can't think of anything worse than scrambling through a whole bunch of receipts that I've kept through the whole year trying to make sure everything's in order.

Can you talk to us then about what these teething troubles are? Because I imagine, as you say, once the businesses have made the switch and are used to it, it should be much more simple to keep this data running. But what are the common teething problems that these half of businesses are running into?

Rob Thomson (3:37)

Yeah, that's a really good question. So it's really moving from a paper-based system, or a lot of business owners, landlords are keeping their records on spreadsheets. So it's moving that across to a compatible MTD piece of software. So quite pleasingly, from our research, we found out that just over a third of those that we questioned had actually bought MTD software. So people are already changing how they organize their records. And we're seeing people use compatible software like Zero, which makes things reasonably straightforward. On top of this, one in about five have opened separate business bank accounts to help them track their business transactions.

So the most common change we're seeing is that there's more regular bookkeeping. There's more regular bookkeeping routine, which is enabling taxpayers to start to get their fares in order much earlier. Now, despite some of these initial reservations around MTD and the cost and the initial cost, over 60 percent that we asked in the Affinia research actually thought that there would be a long-term benefit for them as a result of the MDT filings, and we're surprised at how straightforward the process was.

Rory McGowan (4:55)

Well, that is very pleasing to hear because I remember earlier this year talking about how do we convince people to take up the software who have never done it before. So seeing that there is a lot of positivity towards those small businesses, take it up and say, yes, this will make things a lot simpler and cost effective for me in the future is incredible.