HMRC have today published their response to the six Making Tax Digital consultations that ran over the summer and have confirmed that the digital tax revolution is set to start in April 2018 but who it will apply to remains unanswered.
Against the backdrop of a damning House of Commons Treasury Committee report published earlier in the month, we had hoped that the implementation date would be deferred by at least a year.
The Treasury Committee issued a forty-eight page report that amounted to a forensic critique of the HMRC proposals for Making Tax Digital.
On the Parliament website committee Chairman, the Right Honourable Andrew Tyrie MP, observed “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, Making Tax Digital could be a disaster.”
The committee highlighted significant shortcomings with the current proposals which broadly fall into two categories – burden and engagement. In doing so, the committee echoed many of the points CooperFaure raised in our responses to the HMRC consultation.
Firstly, the report warns that the costs and administrative burdens for very small businesses have been grossly underestimated with the resulting risk that many may go out of business or move into the hidden economy.
Secondly, the report cautioned against both the speed which Making Tax Digital is being implemented and the lack of adequate engagement and consultation with the business community.
The committee recommended five changes to the approach:
- Raising the threshold for mandatory reporting from £10,000 of taxable income to the VAT threshold, currently £83,000, unless the government can justify a lower level.
- Delaying the start of Making Tax Digital until at least April 2019.
- Opening a comprehensive pilot scheme beyond businesses specifically invited by HMRC.
- Running the pilot scheme for a full reporting cycle of four quarterly updates and an end of year reconciliation and evaluating the results before full implementation.
- Ensuring that there is a fully functioning market to provide the software including adequate free software for smaller and less complex businesses. The Government has yet to set out how this may be accomplished.
Whilst HMRC have made some concessions, the most significant being that businesses will be able to continue to use spreadsheets to record receipts and expenditure and then link them to software to automatically generate and send their updates to HMRC, the start date of April 2018 remains unchanged.
However, two key questions in the consultation were:
- Do you agree that £10,000 annual income is an appropriate threshold for exempting businesses from Making Tax Digital?
- Should the smallest unincorporated businesses that are not exempt have an extra year to prepare for Making Tax Digital?
As the HMRC report states, the overwhelming view of the respondents is that the £10,000 threshold is too low and that there should be a deferral given to the smallest unincorporated businesses.
However, Government response to these questions was “Given the range of views expressed on this matter, the government will take more time to consider these issues, alongside the fiscal impacts. Final decisions will be made before legislation is laid later this year.”
Having been long promised clarity on Making Tax Digital by the end of January, we are still no nearer knowing who will have to comply with quarterly reporting from April 2018. Given that the implementation date is a mere fifteen months away, this is a disappointing and frustrating outcome.
We will be reviewing the six response documents in full and publishing a detailed newsletter over the weekend.
However, if you have any questions or concerns, please email us at firstname.lastname@example.org. .