Treasury committee urges delay to tax changes

21 September 2016

The Treasury select committee has called for a delay to plans for a quarterly tax-filing system for small businesses and the self-employed.

Rt Hon. Andrew Tyrie MP, Chairman of the Treasury Committee, has written to Rt Hon. Philip Hammond MP, Chancellor of the Exchequer, to urge caution over the implementation of the Making Tax Digital reforms.

The letter highlights the need for the Treasury and HMRC to carefully to consider all the comments received on the MTD consultations:

”Given the length of these papers and the complexity of the issues, many of those comments may well not be received much before the closing date of 7 November. 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.”

The letter also highlights come of the issues that have already been put to the committee:

“At first sight, it was a relief to read that many businesses already transact with HMRC digitally for VAT and corporation tax. However, the detail makes clear that the new requirement for digital record keeping and reporting is far more than simply entering a handful of totals (which could come easily from paper or an Excel spreadsheet) into an online VAT return. It is tantamount to prescription by HMRC, for the first time, of a particular form in which accounting records · must be maintained.

The proposal for free digital tools for the smallest businesses with the simplest affairs was welcome. But views can only be formed when there is more information on what will be available, to whom or for what type or level of income and for how long its free availability can be assured. The software industry, the government and the small business sector will have different, and competing, objectives in defining this.

The consultation papers do not make clear how the quarterly updates will align with Universal Credit monthly updates, which will also be needed from the low paid.

There will be an exemption for people whose income is less than £10,000. But this is below the level of the Personal Allowance. So it appears that this concession will only be for those who do not pay tax, including new businesses who would otherwise be obliged by MTD to notify HMRC within four months of starting a business. In such cases, there would be no benefit, to the businesses or to HMRC, if they were to submit quarterly reports.

Those businesses with a turnover of just over £ 10,000 (and with profits offer less than £10,000) will be hardest hit if they are obliged to change their working practices; those who currently employ a book-keeper once a year to prepare their tax return might find themselves having to employ the book-keeper four times a year. This could be very burdensome.”

The letter also states:

“MTD may improve the customer experience for a growing number of people who are able to engage digitally. For example, so called 'nudges and prompts', if designed properly, could make dealing with HMRC a less intimidating experience; it could provide the facility of 'what if scenarios to give businesses certainty about the tax consequences of their decisions. Implemented carefully, it could do some good. But it could also do much harm.

The consultation is therefore crucial. It needs to be meaningful. There may be a case for delaying the implementation of MTD. A year's extension for an unspecified group of businesses may not be enough.

There may also be merit in piloting the systems. From this, the lessons from customers' experiences can be learnt, and well before digital reporting is made mandatory.

HMRC's proposals are major changes. There remains considerable cause for concern with the proposals. Better to get it right than to stick to a rigid timetable.”

CIPP comment

We would urge employers to get involved in the MTD consultations if you haven’t already. 

Webinar

There is an Overview of Making Tax Digital for Agents on 25 October 2016, 1pm to 2pm.

Face-to-face events

HMRC are running a series of face-to-face events across the UK throughout September and October 2016. Full details of dates, times and subjects covered are detailed on GOV.UK and also how to apply for a place.