Back in January 2016 we talked about the Government’s Making Tax Digital initiative – the £1.3 billion overhaul of HMRC to transform it into one of the most digitally advanced tax administrations in the world by 2020.
It was intended that by April 2016 each individual and small business would have access to their own secure digital tax account allowing them to interact with HMRC digitally and begin digital reporting for income tax and National Insurance.
So far, so 21st century.
However, as Shakespeare almost said, the course of simpler taxation never did run smooth, and a just-released report from the Treasury Select Committee has voiced a number of concerns that seem likely to lead to the Government tweaking their plans before they sweep the nation.
While backing the concept of MTD as a modernising and sensible plan, the committee has called the current proposals over-ambitious within its relatively short deadline.
The committee chairman the Rt Hon. Andrew Tyrie MP, said if implemented “without sufficient care, MTD could be a disaster.”
As well as suggesting MTD could be made voluntary for smaller business, the committee also suggests:
Delaying implementation in order to run a pilot – they favour an end-to-end pilot with the minister responsible for MTD, before any actual implementation. This would allow for a proper empirical assessment of the scheme. In fact, the Government has just confirmed that they will enact a pilot of MTD, which is expected to go ahead from April 2017 to April 2018.
Delaying implementation to 2019/20 would also allow the committee to take further evidence around how Brexit-related VAT changes will be dealt with, as well as allowing more time for training and education of taxpayers in the use of MTD.
Align MTD entry threshold with the VAT threshold – The committee feels the low £10,000 threshold would be of little advantage for HMRC, or for a business submitting quarterly returns, since most taxpayers with such a low turnover wouldn’t actually pay tax. The report recommends the MTD threshold for businesses should align with the VAT threshold.
Clearer guidance on exemptions – The report has called for the MTD exemption for the digitally excluded to be applied more widely and explained in finer detail. The government’s current consultations exclude those for whom MTD is ‘not reasonably practical’.
Accounting software issues – Will businesses be forced to invest in extra software in order to process their MTD submissions? Since this is a mandatory change the report has called upon the Government to provide free software for MTD.
Clear evidence of cost benefits – HMRCs consultation documents stated “Making Tax Digital changes will help reduce the tax gap and contribute £945 million to the Exchequer by 2020/21.” The committee has asked for further evidence that real time reporting will yield these results.
Cyber security – Would the risk of cyber-attacks increase with MTD? The committee has asked HMRC for assurances about the security of data held by software providers.
Letting people know- The report has stressed that HMRC should run an intensive publicity campaign so taxpayers are aware of their new obligations.
The committee is now expected to take further evidence from ministers when the Government has had time to consider and respond to the report.
For tailored advice about how Making Tax Digital is likely to affect you or your business, call us on: 01792 466428.