More needs to be done to make businesses aware of their obligations under Making Tax Digital, according to a leading accountancy body.
Research by the Institute of Chartered Accountants in England and Wales (ICAEW) has revealed that over 40% of businesses about to be affected by Making Tax Digital (MTD) for VAT are not yet aware of it.
This is despite the fact that the changes are mandatory for most VAT-registered businesses from April 2019. The ICAEW survey also shows that although there has been a significant increase in the number of businesses using accounting software, a quarter of all businesses are still using a paper-based accounting system - unchanged from two years ago.
From 1 April 2019, MTD for VAT will become compulsory for VAT-registered businesses making annual taxable supplies of over £85,000. New rules will make digital record-keeping for VAT compulsory as well as introducing a new requirement to file VAT returns directly to HMRC using software.
However, around 40% of all VAT-registered businesses are registered voluntarily, their turnover being below the VAT threshold. These are not within the scope of MTD.
Many businesses currently type the figures for their quarterly VAT return directly into a form provided on the Government's website. In future, all VAT-registered businesses within the scope of MTD will have to use accounting software to complete their VAT returns.
Only 54% of VAT-registered businesses currently use accounting software. The proportion of all businesses relying on paper-based records alone remains unchanged at 25%, and this includes 13% of those businesses that will need to implement MTD for VAT.
Of those businesses surveyed, 34% said they will be relying on their accountant or tax adviser to deal with the changes for them, 20% will be buying new accounting software and 15% have done so already. However, 20% of businesses that will need to implement MTD for VAT have not yet made any preparations for it.
Anita Monteith, ICAEW technical tax manager, said: "We continue to fully support HMRC's ambition to increase the use of digital technology, but we are concerned that based on these results many businesses are not going to be ready for implementation in April 2019.
"The lack of awareness among businesses about MTD is of concern and needs to be addressed: the communications on MTD do not appear to be getting through to VAT-registered businesses … It is also clear that even among businesses that are aware of MTD for VAT, many of them have not started to prepare to implement it … MTD for VAT is a major change in tax administration and it is important for the UK tax system that it is a success: this is too important to be rushed."