Making Tax Digital serves the needs for larger accounting software vendors and SMEs alike, but what about micro businesses and the self employed? Mazuma’s Lucy Cohen warns that the rules come to effect in April 2023, and the UK’s self employed need to catch up FAST.
Under Making Tax Digital (MTD) rules, any business, sole trader, or landlord with an income of over £10,000 will have to file returns to HMRC five times a year instead of annually as they currently do. With a current reported loss of £9 billion to the Treasury a year due to incorrect tax forms, the Government chose to come up with a plan that not only takes the annual stress away from business owners but also minimises economic financial risk.
New research from online accountancy service for small and micro businesses, Mazuma, reveals that nearly half (41%) of plumbers are unaware of the impending MTD rules due to come into force in April 2023. This comes with a warning that up to 83% risk falling foul of penalties when the law is enforced due to not using online apps or software to keep a track of income.
According to co-founder of Mazuma, Lucy Cohen, there’s an inherent problem with expecting micro businesses to adopt digital solutions without adequate support. “Making Tax Digital is shoe-horning a digital solution into a non-digital world. It is elitist and it will undoubtedly create a two-tiered society amongst the self-employed,” she warns.
“While this system intends to make filing tax returns much easier, it’s clear that HMRC haven’t been transparent enough. If you extrapolate our figures, that means that we could be looking at over 124,000 Plumbers who are currently falling foul of the new legislation that comes into effect in 18 months’ time,” Lucy adds.
“More worryingly, these numbers only relate to plumbing – a small section of the self-employed community. According to the Federation of Small Businesses, there were 5.9 million small businesses at the start of 2020.”
She warns that this figure is likely to be far higher today due the number of jobs lost to the pandemic which has seen a spike in the number of people becoming self-employed. ”The exact figure of just how many sole traders may suffer greatly due to the MTD rules doesn’t bear thinking about.”
Plumbers were the most in-demand tradespeople of 2020. Overall, they are the fourth-most in demand people across all industries and sectors, and this is expected to continue for the next decade. However, considering the recent findings from Mazuma, nearly all plumbers are at risk of accruing, at most, £292 annual interest on top of their tax bill due to a lack of understanding around the rules, or an inability to follow the current system.
“It seems that HMRC has left much of the communication of this problem to software vendors,” adds Lucy. While larger software houses have taken on that role, spending their hefty marketing budgets to push this communication, the problem is that a lot of those vendors have software products that just don’t work for micro-businesses, according to Lucy.
“What plumber has the time to learn to use a piece of software on top of the long hours they already work? And not only that – many will have to pay a significant sum to complete the extra burden of filing five times a year.”
The risk with MTD is that many plumbers, and other self-employed individuals, will choose to shut up shop and instead work for a firm where they are under a PAYE system. For the public, this could mean inflated cost of hiring services, such as plumbers, and for the economy, a potential loss of up to £125bn towards the country’s recovery post-pandemic.