The Treasury Select Committee has urged the Chancellor not to rush Making Tax Digital after hearing evidence from accountancy representative bodies and the Federation of Small Business (FSB).
Accountancy and small business experts told the committee on Tuesday about the financial burden MTD will inflict on small businesses and argued against mandation.
Mike Cherry, the FSB’s policy director, estimated that MTD will cost businesses £2,770 per year. He later said a more indicative timescale for the digital project would be 2025, “which would enable businesses to latch on to something that does work after being properly tested”.
“The idea that you should be bringing this in on sole traders and landlords as a tranche before testing it properly starting with larger businesses... [is] going about this the wrong way,” said Cherry.
“Many small businesses are not aware that this is coming down the track. It’s creating a perfect storm. We have had the national living wage, dividends changes, auto enrolment, and now we seem to be tinkering around the edges.”
Chas Roy-Chowdhury, ACCA's head of taxation, said businesses with agents were aware of the changes but one man band types had “no idea whatsoever".
Frank Askew, head of tax faculty, explained how the professional bodies want to support the principle but "the fundamental parameters have already been set and we are just consulting on the detail”.
Rebecca Benneyworth, head of HMRC’s digital advisory group, recommended at least the VAT threshold being set as an exemption. But she used data from a Lloyd’s bank report to warn that 1.4m small businesses have no digital skills. Benneyworth illustrated this with an encounter she had with a taxi driver who knew nothing about HMRC’s digital plans and said he “would be stumped”.
Cherry added that 75% of businesses do not maintain their accounts electronically in full detail. And Askew cited an HMRC survey which found 18% of self employed were not digitally enabled and 38% required help.
Cherry believed HMRC’s mandatory digital plans are driven by the Treasury’s investment in its IT and not so businesses can comply.
In a letter to the Chancellor, Andrew Tyrie, the Treasury Select Committee chairman, requested details on: the cost of software (and upskilling to use it), the added administrative burden; cost migrating to new accounting systems; the cost employing tax agents and accounts; and the impact on business productivity.
He also called for a measured approach to the Making Tax Digital implementation. “Every effort should be made fully to pilot its introduction, perhaps over several years. Only after the lessons have been learned from the pilot should consideration be given to a mandatory scheme."
He added: “Nothing like enough has been done, so far, to ensure that this proposal does not harm many of Britain’s small businesses.
“As things stand, it looks as if the effect will be to transfer part of the costs of HMRC’s IT investment to businesses, along with a heap of administration.”