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Put the brakes on Making Tax Digital for businesse

Put the brakes on Making Tax Digital for businesses, urges Committee

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From Peter Saxton

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Key findings

The Sub-Committee examined in detail clauses in the draft Finance Bill that make tax digital for small businesses and the self employed. These changes will affect 1.6 million companies, 2.4 million self-employed individuals, and 900,000 residential landlords.

The  Committee agrees that the digitalisation of tax is to be welcomed. But it concludes that the roll-out of the scheme is being rushed, imposing unnecessary burdens on small businesses, and will yield little benefit to the Government.

The Sub-Committee recommends a series of modifications to ensure the policy is implemented successfully:

Revise and improve its assessment of Making Tax Digital's benefits and costs. The Government's estimate of the 'tax gap' savings are fragile and not based on adequate evidence. The assertion that the scheme will initially cost businesses £280 does not reflect the reality of the initial expenses businesses will incur.

Delay the scheme until 2020 to allow a full pilot. This delay will allow the Government to test whether Making Tax Digital does reduce taxpayer errors, assess the actual costs to business, and receive valuable feedback from business users. It also gives the Government time to raise awareness and put in place support systems for those who lack digital skills.

Make keeping digital records and quarterly reporting optional for businesses with a turnover below the VAT threshold. For smaller businesses the requirement to report quarterly to HMRC will impose an unnecessary burden, and will be of limited use.

Look again at which businesses are included in the scheme. The Government should examine whether some kinds of businesses, such as those with seasonal or highly irregular income, should be outside the scheme.

Chairman's comments

Chairman of the Sub-Committee, Lord Hollick, said:

"Many small businesses and landlords are simply unaware of or not ready to cope with the additional administrative and financial burdens that will be imposed by digital taxation.

"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 it needs to further delay the scheme's implementation, and take a more incremental and gradual approach based upon the evidence from the pilot.

"This scheme coincides with changes to business rates and dividend taxation, all of which will impact some small businesses.

"A full pilot will ensure the software works and provide hard evidence of the additional financial and administrative burdens on businesses. It will also provide evidence in place of the widely disbelieved assessment of costs and benefits of the introduction of Making Tax Digital.

"We are sceptical of the benefits to small businesses of regular digital reporting. We recommend that the scheme remains optional for businesses with a turnover below the VAT threshold."

Replies (8)

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By lionofludesch
17th Mar 2017 08:08

No, I haven't seen that before. Thanks, Peter.

I will wait for something more concrete though. Having said that, it's hard to make decent plans given the shocking absence of information at present.

The potential bunching of work into four months of the year will be the biggest problem. The notion of altering year ends to suit MTD is a sticking plaster approach to me. Obviously it can be done, but it's an outrageous suggestion.

Thanks (1)
By Duggimon
17th Mar 2017 09:35

I don't know much about the in depth parliamentary process, most of what I know has been gleaned from In The Thick Of It. What obligation is there for the government, the treasury and HMRC to regard and respond to this report? Is this something that will have to be addressed for the finance bill to pass or could the government ignore it entirely?

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Replying to Duggimon:
By kaff
18th Mar 2017 19:35

There's no obligation for the government to address the points made. The Finance Bill is a Money Bill, which the Lords can scrutinise and comment on, but not amend. See interesting summary here:

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Replying to kaff:
By lionofludesch
18th Mar 2017 19:50

Quite right - but the more the Lords criticise, the more likely it is to become a "vote-loser".

Which can make MPs in marginal constituencies very toey ....

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By MM Bookkeeping Services
17th Mar 2017 09:36

Thanks for the info.
As I've said before it is about time the press and TV started letting the public know about this.
I'm sure this would result in a lot more people who at the moment have never heard of MTD, actually start voicing their opinions.

Thanks (1)
By Tornado
17th Mar 2017 09:38

Yes, well spotted Peter.

Thanks (0)
By Tornado
17th Mar 2017 10:19

"We are sceptical of the benefits to small businesses of regular digital reporting. We recommend that the scheme remains optional for businesses with a turnover below the VAT threshold."

Even this is not going far enough. I have a number of clients who are over the VAT threshold and do keep more than adequate records for VAT purposes, but not in any commercial software. It will be impossible for these businesses to convert to MTD compliant commercial software by April 2018.

It is just NOT going to happen.

The move to MTD should be optional for everyone at the moment with perhaps a mandatory requirement by say 2025 for everyone.

It is as simple as that.

Thanks (3)
Jennifer Adams
By Jennifer Adams
17th Mar 2017 09:57

See above link: yesterday The Economics Committee tweeted "Our report on Making Tax Digital for business will be published tomorrow. Find out more about our work on the Finance Bill:"
and there is further detail in open book format of their work on the Finance Bill and their approach to the MTD question.

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