The determination of the government to press ahead with its plans to “Make Tax Digital” (MTD) is creating the serious risk of a ‘major disaster’, according to MPs. A report from th parliamentary Treasury Select Committee warned earlier this week that the scheme as currently planned could cause chaos.
Andrew Tyrie, chairman of the Treasury Committee, which produced the report, said “Carefully introduced, the digitisation of tax records and reporting can be an opportunity greatly to improve the administration of the tax system for the long term. Without sufficient care, MTD could be a disaster.
“Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, Making Tax Digital could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither.
“The committee has identified a number of serious shortcomings with current plans. In a nutshell, these are twofold.”
MPs’ first concern centred on timing, with the report lamenting “too short a lead time for such a fundamental change in any event”, and suggesting that there should be a comprehensive set of pilots of the end-to-end system before it is made mandatory for all businesses.
The second fear concerns cost to small businesses: “The committee is very concerned about the costs to businesses of introducing MTD, as well as the continuing costs of maintaining digital records and submitting quarterly updates,” the report reads.
‘A damning indictment’
From the SME viewpoint, the report validated several fears. Mike Cherry, National Chairman at the Federation of Small Businesses (FSB), said the important report was “A damning indictment of the Government’s mandatory tax plans as they currently stand, and Ministers must listen to it. The voices of the UK small business community and MPs from all parties now speak as one – the proposals as they stand put our economy at risk. Ministers must heed this report before publishing draft legislation.
“The Committee’s recommendation to delay implementation until 2019-2020 is the right first step, as the proposed timetable is rushed and unrealistic, without enough time for HMRC to engage with affected businesses and conduct user-testing. Extraordinarily, we have still not seen the impact assessment published, nor is there any clarity over those who will receive free software or even a clear definition of those who would qualify as digitally-excluded.
We are particularly pleased to see the Committee back our own recommendation that the exemption threshold should be increased and aligned with the VAT registration threshold (£83,000), to remove those businesses least able to cope with the proposed reforms – and as a tax simplification measure.
It suggested the government should abandon its plans for an initial threshold of £10,000 and argued it has not seen “evidence strong enough to justify a threshold below the VAT threshold, £83,000”.
An HMRC spokesperson said, “Many businesses find it hard to get their tax bills right. Making Tax Digital will modernise the tax system, helping them get their tax bills right with the least administrative burden. We’ve consulted business at every step and have already made changes as a result to exempt the smallest businesses and pilot the programme with hundreds of thousands before it is rolled out.
“We welcome the committee’s support for the digitisation of the tax system, and will consider its recommendations carefully.”