Ahead of the deadline to submit a paper tax return (on 31st October), it is now clear that UK businesses are already making the transition to filing their returns online.

With less than just two more years left to file traditional paper tax returns, due to the government’s Making Tax Digital initiative, statistics from HMRC show:

• Paper tax returns now account for just 11% (or 1.14 million) of the 10.39 million filed in the last tax year (2015)
• 1.48 million paper tax returns were filed in the previous tax year (2014), meaning 340,000 fewer businesses filed paper tax returns in the last tax year alone
• Online returns totalled 9.24 million (89%) of all tax returns in the last tax year

Despite businesses filing more and more online tax returns, research from FreeAgent highlights that many business owners in the UK are in the dark about the proposed Making Tax Digital plan.

Micro-businesses need more clarity about UK’s tax digitisation plans

FreeAgent - who provide multi-award winning cloud accounting software for over 50,000 freelancers, micro-businesses and their accountants around the UK, found that almost half (43%) of the UK’s micro business owners had no idea what Making Tax Digital actually is.

The research shows that 86% of respondents who knew what Making Tax Digital was did not feel at this stage that they had been provided with enough information about the plans - which would see small businesses having to keep digital financial records and provide quarterly updates about their tax to HMRC.

However, FreeAgent also found that businesses who knew about tax digitisation were generally positive about it, with 45% saying the plans would make their life easier while just 20% said they felt digital tax would make things harder for them.

Ed Molyneux, CEO and co-founder of FreeAgent, said: “Making Tax Digital is undoubtedly one of the biggest changes made to the UK tax system for a generation and will start to impact businesses from as early as 2018. This research however highlights that many micro-businesses still need more information about how tax digitisation will actually work and how ultimately it will impact upon their business.”

“Contrary to some beliefs, businesses will not need to file a tax return every three months in future.  Instead, businesses will need send summary data to HMRC about their business each quarter, or more often if the business prefers.”

“Most recently, the government announced a new consultation examining the Making Tax Digital plan. This is certainly a step in the right direction towards helping micro-businesses understand more about tax digitisation, yet there is still a lot of work to be done. Overall, I hope that we see more clarity over the plan so that micro-business owners feel fully informed and more positive about the benefits that digital tax can provide for them.”