The influential House of Lords economic affairs committee has this week criticised The Government’s ‘Making Tax Digital’ programme, adding to the raft of criticisms the proposals have already received from Members of Parliament and pro-business groups.  In a Report  published on March 16, the committee urges the Government to re-think and argues that “while the digitalisation of tax administration in a way that assists taxpayers is an objective to be welcomed the Government is wrong not in the principle but in the transitional arrangements, the treatment of the digitally disadvantaged, and the threshold for inclusion

Delay Making Tax Digital

The plan to ‘make tax digital’  was originally announced in the March 2015 budget and is scheduled to come into force in April 2018. It is estimated that the changes will affect an estimated 1.6 million companies, 2.4 million self-employed, and 900,000 residential landlords.  In last week’s Budget, Phillip Hammond responded to criticisms of the plan by announcing that he would delay implementation of the scheme for businesses with a turnover of less than £83,000, the VAT threshold, until April 2019. The economic affairs committee argues that this does not go far enough.

Lord Hollick, the Chairman of the economic affairs committee, states in the report that  “We welcome the Government’s announcement in the Spring Budget that the scheme would not apply to businesses with a turnover below the VAT threshold until April 2019.  However, This does not go nearly far enough and [the government] needs to further delay the scheme’s implementation, and take a more incremental and gradual approach based upon evidence provided in the MTD enquiry.”  These criticisms are likely to once again bring  The Government’s treatment of the self-employed, entrepreneurs and small business in to question, following the embarrassing (but not entirely surprising) U-turn on increasing Class 4 national insurance.

The 4 key recommendations of the report in order to achieve ‘effective implementation’ are as follows

  • The Government should revise the benefits and costs of Making Tax Digital: The assertion that this will only cost small business £280 is misguided and estimates of ‘tax gap’ savings fragile at best.
  • Digital record keeping should be optional: For businesses with a turnover below the VAT threshold, the case for making it compulsory for smaller business has not been made. There is no evidence that these requirements will reduce taxpayer error. “It does not follow that more frequently recorded information is more accurate information.” The quarterly reports will impose an unnecessary burden on businesses.
  • Delay launch of the Scheme until 2020:  The success of Making Tax Digital is highly dependent on the software and apps that are developed to support it. There is little evidence to suggest the software houses are prepared for this and the current plan to implement Making Tax Digital in 2018 does not leave enough time for a full and thorough pilot of the scheme to be carried out.
  • Review businesses to be included in Making Tax Digital:  Seasonal businesses and those with an irregular income should be exempt from the scheme.

You can view the full report from the House of Lords Economic Affairs Committee here Making Tax Digital for Business 

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