Small firms fear £3.3bn bill as VAT goes online

SMALL business owners could face a bill of £3.3billion after a major Treasury shakeup of tax collections.

All companies will have to file their VAT returns online for the first time after the new tax year starts in April.

The changes are part of a huge push to move the tax system online, but could force firms to spend thousands of pounds a year on new software, advice and accountants’ fees.

The average company is expected to be landed with a £2,770 bill for the changes, according to the Federation of Small Businesses.

At least 1.2 million firms are due to be affected from the VAT changes, the first wave of the Maksaid: ing Tax Digital programme. If they each end up paying £2,770, the cost would hit £3.3billion.

An HMRC spokesman called the FSB figure ‘child’s maths’, saying the true sum was closer to £37million, or an average of £31 a year for each business.

Campaigners last night warned the Making Tax Digital switchover could cause chaos and leave the business backbone of Britain struggling to cope.

Labour MP Wes Streeting, a member of the Treasury select committee, said: ‘ Making Tax Digital sounds great in principle, but in practice there’s plenty of evidence that small businesses aren’t ready and this is bringing in added cost and uncertainty at an already uncertain time.’

Mike Cherry, chairman of the FSB, ‘ The roll- out has come at a torrid time for small firms, with wages, auto- enrolment contributions and business rates all on the rise at the start of April.

‘We also have the small matter of Brexit to think about. It’s vital that HMRC takes a light-touch approach to small businesses as they transition to Making Tax Digital.

‘HMRC’s customer services are often found wanting. We need to see tax advisers making a concerted effort to pick up the phone in the coming weeks, providing support where it’s needed.’

The Making Tax Digital plan has been in the works since 2015, when it was proposed by then-chancellor George Osborne.

It is intended to drag the tax system into the modern age but has been heavily criticised for causing uncertainty and tying up companies in red tape.

As part of the change, firms turning over more than £85,000 a year must start keeping digital records of the VAT they collect from April 1.

VAT is paid by consumers when they buy goods and services, and is typically charged at 20 per cent. The sellers collect this money and then pay it to HM Revenue and Customs. Businesses must file four VAT returns a year.

After the change, companies will have to file tax returns using special software compatible with the Government scheme – and this typically comes with a hefty price tag. Most providers charge a monthly fee for using the programs, and in some cases this adds up to more than £3,000 a year.

‘A torrid time for small businesses’