Innovation and changeGovernment TechnologyPressure mounts on HMRC to delay Making Tax Digital deadline

Pressure mounts on HMRC to delay Making Tax Digital deadline

Leading accountancy bodies have backed a House of Lords call for delaying Making Tax Digital (MTD) by at least a year

Leading accountancy bodies have backed a House of Lords call for delaying Making Tax Digital (MTD) by at least a year, reports Accountancy Age.

Making Tax Digital for VAT will require that VAT registered businesses with taxable turnover over the VAT registration threshold keep records in digital form and file their VAT returns using software. However, a House of Lords Economic Affairs Committee report published last week recommends that Making Tax Digital should not be mandatory when it comes into force in April 2019. Instead, businesses should go digital at a pace that suits them, the report says.

The Government has already delayed the introduction of MTD by a year, but last month it launched a pilot for businesses to try out the channel in advance of it becoming mandatory.

The committee’s concerns about the prospects for small businesses reflect its wider range of anxieties about the programme. One derives from the absence of any free software to deal with Making Tax Digital, which the report points out creates an extra cost for taxpayers. The report therefore recommends the Government considers developing a free software option.

Still unaware

The ICAEW lent its support to the recommendation. The organisation has found that 40 percent of businesses about to be affected by Making Tax Digital for VAT are not yet aware of it. It also said a quarter of businesses are still using a paper-based accounting system. This will not be permissible for MTD for VAT.

“We support HMRC’s ambition to increase the use of digital technology, but we are concerned, as is the committee, that many VAT registered businesses are not going to be ready for implementation in April,” said Anita Monteith, ICAEW’s tax manager.

“Direct communication by HMRC about this major change is only just beginning and with only four months to go, there is not enough time for businesses to act.”

The report also says that the Government should wait until at least April 2022 before Making Tax Digital is extended to other taxes. This is so that lessons can be learned from the implementation of MTD for VAT.

Biggest overhaul

“MTD for VAT will be the biggest overhaul in VAT obligations for decades,” said Adrian Rudd, chair of the CIOT/ATT Digitalisation and Agent Strategy Working Group (DASWG).

“With just a few months to go before it kicks in, these knowledge gaps could mean normally compliant firms fail to fulfil their new obligations.”

Those organisations which have commented have been keen to stress the eventual benefits of digitisation. These include greater efficiency for taxpayers, the authorities and agents.

“With Brexit in March next year and MTD for VAT coming in just days later it promises to be a spring of change and challenge for businesses,” Adrian Rudd said.

Not listening

The House of Lords Economic Affairs Committee’s Making Tax Digital for VAT: Treating Small Businesses Fairly report was critical of HMRC.

Lord Forsyth of Drumlean, Chairman of the House of Lords Economic Committee, said: “HMRC has neglected its responsibility to support small businesses with Making Tax Digital for VAT.

“HMRC are not listening to small businesses, while offering a six-month deferral to many in the public sector. Small businesses will not be ready for this significant change to their practices, especially with Brexit taking place three days earlier.”

The report calls on HMRC to delay implementation plans for non-VAT elements of the programme until 2022 at the earliest, so it can learn from its current lessons. Additional recommendations include the publication of plans for HMRC’s communications and support systems to meet the needs of taxpayers and agents, along with the plan for the long term development of Making Tax Digital, and the creation of fairer regime covering penalties for late payments.

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