Chartered Tax Advisers & Accountants

My Making Tax Digital, Blog Part V, it’s going to cost you…!

Published On: 16 May 2017
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Making Tax Digital (MTD) is underway now, with the pilot up and running, albeit the government have admitted they are being too hasty and have knocked everything back a year.  But how much is it going to cost you, as a small (or SME) self-employed businessperson not currently using some form of acceptable software?

The MTD pilot is handing a number of companies an excellent opportunity to refine their software and improve it.  I’m pretty sure that all the software suppliers investing in the pilot are well aware of the opportunity the government is handing them on a plate and they would be very poor businesses indeed if they didn’t do everything in their power to maximise the potential future gains.

It is clear that small businesses are going to be pushed to use cloud accounting.  The demand for services provided by the likes of Sage, FreeAgent, Quickbooks et al will increase.  To be fair, I think that using cloud accounting is a good thing, but, as I noted at the end of my first MTD blog, increased demand means increased prices.  That’s great for the suppliers of cloud accounting, but a lot of the self-employed fit into the Prime Minister’s ‘just about managing’ category.  We don’t want anything that will take more money out of our pockets.  Yet MTD will do just that…

However, according to the powers that be this is going to cost hardly anything.  The figures given by government as the likely costs to self-employed businessmen and women are interesting.  As quoted in an article by KPMG in February this year, they are as follows:

“At the end of January, the Government published its response to the consultation.  In it, the figures behind the business case for MTD were amended as follows:

  • HMRC revised up the contribution to the Exchequer from £1bn by 2020/21 to £2bn by 2021/22;
  • On-going savings of £85m to £250m became on-going savings for business of £100m per year;
  • The transitional costs for business were estimated to be £1bn over 2017/18 to 2020/21 (or £280 per business for the four years).”

So that’s it.  The government collects more tax, yet it will cost businesses only £280 a year extra over four years (four years being the time to transition fully to MTD).  KPMG did, to be fair, note that there are still a lot of doubts over these figures and well there should be.  I’ve been using XERO for a few years now (I’m about to stop because their customer service is poor).  It was costing me just over £26.40 a month, or £316.80 a year, which over four years is £1,267.20.  So, if (like thousands and thousands of the self-employed) you are not using cloud accounting and you choose XERO, it will cost you a bit more than £280.

In fact, according to the Federation for Small Businesses, the cost is likely to be a lot more: some £2,770 a year in fact.  Over four years that’s just over £11K.  Not £280.  Other studies suggest lower amounts, but at the very least they estimate it will cost small businesses more than £800 over 4 years.  That’s not £280 either.

Does all this give you confidence in the rest of HMRC’s calculations?  No, thought not.  Is there much we, the self-employed small-businessmen and women, can do about it?  No, probably not.  But that doesn’t mean we should not complain and lobby our elected representatives and trade bodies.

Finally, to return to the costs of cloud accounting, yes, new entrants can come into the cloud accounting arena, and yes that ought to mean reduced prices, but the way the system is being set up just now gives, in my opinion, a head-start to those already in the game.  And if the inevitable increased demand means increased prices from the suppliers like XERO, IRIS, Sage, etc., then the government estimates of the cost of MTD to small businesses become yet more laughable.  It is going to cost us.

Alastair Blair, thePotentMix