Better to take care on the road to it than to have a road accident

24 January 2017

The government needs to change its approach according to the Treasury Committee who has identified a number of serious shortcomings with current ‘digital’ plans.

The government published a package of 6 consultations on MTD in August 2016.  In September 2016, before the consultations had even closed (7 November 2016), the Treasury select committee had already called for a delay to plans for a quarterly tax-filing system for small businesses and the self-employed. Andrew Tyrie, Chairman of the Committee, wrote to the Chancellor of the Exchequer, to urge caution over the implementation of the reforms highlighting that “…Legislating in Finance Bill 2017 means that there will be little time for further development of the proposals between the end of the consultation and the normal date for the publication of draft Finance Bill clauses, around the end of November.”

Treasury Committee’s report

In their full response to the government’s six Making Tax Digital consultations, the Committee has identified a number of serious shortcomings with current plans. In a nutshell, these are twofold:

  • Costs and administrative burdens - the costs and administrative burdens for very small businesses, with the consequent risk that many may go out of business or move into the hidden economy.
  • Engagement - the speed with which MTD is being implemented. Millions of small businesses up and down the country are ill equipped to handle the reporting requirements.

The report states that taken together, these could undermine the government's objectives – for the yield and for the economy - and discredit the approach. The collateral damage could be large if the government gets it wrong, these reforms will affect millions of taxpayers. Their co-operation and trust are both hard won and easily dissipated. Without them, more of the yield could be at risk than any putative extra revenue from MTD.

The Committee has recommended that the Government should change its current approach and ensure the following:

  1. to abandon its plans for an initial threshold of £10,000. The Committee has yet to see evidence strong enough to justify a threshold below the VAT threshold, £83,000
  2. the proposed timetable for implementation in April 2018 looks unachievable, there needs to be a delay of the start until at least 2019/20, possibly later
  3. comprehensive pilots of the proposed system are essential, with full protection from anything that may go wrong for those required to participate
  4. the pilots need to be designed to gather information over the entire reporting cycle – four quarterly updates and an end of year reconciliation. These need to be evaluated before full implementation and Parliament needs to see the evidence that this has been done
  5. a fully functioning market in appropriate software is essential. This will need to include adequate free software for smaller and less complex businesses.

Andrew Tyrie concluded:

“The long term future can, and probably should, be digital. Better to take care on the road to it than to have a road accident. Robust Parliamentary scrutiny could reduce that risk, hence the proposals in my letter of 12 December

The Committee will take evidence from Ministers when the Government has had time to consider and respond to this report."

Read the full report from the Treasury Committee making tax digital.