Smaller businesses need more help to cope with the impact of digitisation

What’s the biggest problem facing small firms and SMEs? Is it Corporation Tax, VAT compliance or workplace pensions? Well, not according to new research from the Institute of Chartered Accountants in England and Wales. Although Corporation Tax and VAT compliance can be troublesome for smaller SMEs, the real problem facing small businesses according to the ICAEW is digital exclusion.

How did the ICAEW come to this conclusion? Well, the research found that smaller firms who require support from when it comes to the issue of digital business transaction are not necessarily getting sufficient help and support. It is, therefore, calling for greater levels of support to ensure that government plans to digitise business transactions actually come to fruition.

In reaching these conclusions the ICAEW compared the successes and failures of global attempts to digitise tax. It subsequently submitted its findings in the report ‘Digitisation of Tax: International Perspectives’ prior to the government’s consultation deadline for Making Tax Digital.

In the report, David Lyford-Smith, technical manager of the Institute of Chartered Accountants for England and Wales, said:

“There must be an avenue for those who cannot comply with digital reporting to avoid penalties; this may be through traditional paper-based record keeping or via supporting a network of accessible and affordable tax agents.”

The report also states that the “largest and most persistent” issue facing smaller SMEs is digital exclusion. What’s more, the ICAEW believes that however much the Government helps to further educate small business owners and provides them with better resources, “total compliance is impossible”.

How did the ICAEW reach such a conclusion? By examining what has happened with digitisation in other nations over the last few years, and looking at its impact. Although Estonia is often help up as the perfect example of how total digitisation is possible and workable, Lyford-Smith believes even there smaller businesses are facing continuing problems:

“Estonia’s digital transformation is one of the leading examples, and yet there is digital exclusion as in remote areas internet connectivity is poor.”

In early 2016 an ICAEW survey found that securing universal adoption of digital payments among British businesses was anything like straightforward: the survey found only 25 per cent of businesses actually maintain electronic accounting records.

If the government is committed to delivering on its Making Tax Digital promise, then much more work needs to be done according to Mr Lyford-Smith. What’s more businesses should not be forced to embrace a policy for which they are ill-prepared

“There is a huge amount to be done by businesses, HMRC and the software industry in a very little time,” he said.

“We believe the move to digital should not be made compulsory and instead should be a matter of choice for business owners,” he added.

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