The transition to Making Tax Digital (MTD) is likely to cost businesses, landlords and the self employed around £500m in the year of rollout (2018-19), with the first year of quarterly reporting likely to cost each business £280 on average
HMRC’s current breakdown of admin burden costs and savings, forming part of its impact assessment, estimates that transition year costs will be £100m in the run-up to the rollout in 2018 and a subsequent £500m in 2018-19, falling to £350m in 2019-20.
HMRC says that ‘although businesses will see cost in the first transitional years, savings will start to be made from 2020-2021 onwards’.
Theresa Middleton, HMRC director of Business Customer and Strategy told CCH Daily: ‘The impact assessment shows that there will be a one-off cost for every business of an average £280 to cover training costs and software changes, and this will be supported by extensive testing to ensure that the system is as user friendly as possible.’
HMRC’s estimate that the transitional costs average about £280 per business over the period 2017 to 2018 to 2020 to 2021 are on the basis that there will be 1.8 million businesses using quarterly reporting. Other businesses may be exempt due to falling below the suggested £10,000 exemption threshold however, the government has agreed to review the proposed £10,000 exemption threshold after calls for it to be increased.
Initial training and deployment costs, as well as annual licensing charges from using specialised tax reporting software, will result in businesses paying more than most for Making Tax Digital.
The costs for businesses are likely to cover:
- time spent in familiarising themselves with the new digital tools and quarterly submission of information;
- purchase of new apps and upgrading existing software - this will depend on what free software is available from the market, and take-up;
- a small minority of businesses may need to purchase new hardware or upgrade existing hardware; and
- additional accountancy/agents costs.
The introduction of digitised tax reporting is expected to raise an additional £945m in tax revenues by 2020-21, with this rising to £2bn by 2021-22. This is required to close the ever-growing tax gap which has now reached £8bn a year, simply down to errors on annual returns.
