Making Tax Digital delay 'does not go far enough'

Budget 2017 conceding that one-man bands whose turnover is below the VAT limit can have an extra year before Making Tax Digital applies does not go far enough, HMRC has been told.

In a joint statement, three bodies of tax experts said that while the chancellor’s delay for single-person businesses is welcome, MTD should be optional for all traders below the £83,000 threshold.

The bodies were agreeing with a House of Lords report which says the scheme should not be compulsory for tiny traders or it will be burdensome and of limited use.

“We welcome the chancellor’s Budget announcement that businesses with a turnover below the VAT limit will have an extra year before being required to keep digital records”, said one of the bodies, the Low Incomes Tax Reform Group.

“But [we] agree with the [Lords’] committee that this does not go far enough; the digital programme should be optional for businesses below the VAT threshold, for people will naturally gravitate towards systems that are good, intuitive and easily navigable, without the need for compulsion.”

Another of the bodies, the Association of Taxation Technicians, said it supported the Lords’ reservations about some of the figures HMRC has published in relation to the scheme.

“We support concerns in the report that the government's estimate of the 'tax gap' savings are fragile and not based on ‘adequate evidence’,” said ATT’s Yvette Nunn.

“Similarly, we are highly sceptical of HMRC’s assertion that the scheme will initially cost businesses on average just £280, a figure that does not reflect the reality of the initial expenses businesses will incur.”

The third body, the Chartered Institute of Taxation, said it welcomed the report because it recommends the scheme is shelved until 2020, so that a full pilot can take place beforehand.

“A delay would enable the diverse nature of businesses affected to be addressed and a little more consideration of how their tax agents and accountants can support them,” said the CIOT’s Adrian Rudd.

A pilot was favoured for being able to test whether MTD will reduce errors; whether it will be workable in terms of software, and whether it will actually come in shy of the £300 cost per owner-manager that the government estimates.