Small and medium firms are not prepared for Making Tax Digital (MTD), according to the Association of Chartered Certified Accountants (ACCA).

Working with the Corporate Finance Network (CFN), the ACCA's SME tracker shows that an average of 14% accountants in the UK think their clients are "unprepared and will not be ready" for the new scheme.

In the survey of 8,900 accountants, 40% said SMEs are "partially prepared" but are "not confident they will be ready" for the extension of MTD.

In comparison, only 22% said their clients are fully prepared and have the appropriate software set up.

Analysis also reveals a north-south divide between SMEs and their awareness of MTD, with half of London-based advisers saying businesses will be ready for the scheme, compared with just 17% outside of London.

What is MTD?

MTD aims to remove paper-based filing and presently involves online submission of VAT.

MTD for VAT was first introduced in April 2019 to businesses with a turnover above the £85,000 VAT-registration threshold. All VAT-registered businesses have had to comply since April 2022.

From April 2024, MTD will apply to income tax, spelling the end of the self-assessment tax return as we know it.

The Government had wanted to introduce it in 2023, but recently postponed it by a year to give businesses more time to recover and prepare after the pandemic.

MTD for income tax will affect most self-employed taxpayers with business or property income over £10,000 a year.

Under the scheme, taxpayers will have to file quarterly returns every three months and an annual end-of-period statement on or before 31 January following the end of the relevant tax year.

MTD for corporation tax will arrive no earlier than April 2026.

SMEs unprepared for other Government plans

The ACCA's SME tracker also found that businesses are underprepared for other economic and tax schemes, which could stump Government plans.

SMEs across the UK largely remain unaware about the Government's flagship ‘help to grow' scheme, which aims to boost businesses' productivity.

In the survey, 42% of accountants said their SME clients have not asked about the scheme or do not know what it is.

There seems to be a north-south divide here, too, with 16% of accountants in London saying half of their clients had asked about ‘help to grow', compared to 3% of accountants outside of London.

Instead, businesses are focused on immediate issues, such as tax compliance and access to finance, rather than investing in their future growth, the ACCA said.

Such investments include MTD, R&D support and ESG accounting, it added.


Glenn Collins, acting head of ACCA UK, said:

"Government strategies to spur investment for the future are not cutting through with SMEs who seem to be taking a short-term approach, coupled with a belief that schemes are not applicable or relevant to them.

"SMEs outside of London also need a comms boost to ensure they're part of the levelling up agenda - the Government can do this by working with intermediaries and the UK's local authority infrastructure."

Kirsty McGregor, founder of the CFN, adds:

"It's concerning that Government interventions to aid efficiency or growth are not landing as they should with SMEs, especially outside of London.

"While accountants, professional bodies and networks are offering advice, what's also needed is a co-ordinated and targeted government communications programme for SMEs to keep them appraised on what's available and the reasons they should be accessing these schemes."

Talk to us about your future plans.