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Millions face 'extra burden'

Peers call for further delay to digital tax plan

Income tax own picGovernment plans to force millions of small companies and self-employed workers to publish regular digital returns should be delayed until 2020, according to a committee of peers.

The House of Lords Economic Affairs Committee also wants the Making Tax Digital scheme to be made optional for many firms.

More than 1.6 million companies, 2.4 million self-employed individuals and 900,000 residential landlords will be affected by the initiative.

There have been widespread concerns that companies are not prepared for the change. Pressure from various sources, including the Chartered Institute of Taxation  (CIOT) and Association of Tax Technicians (ATT), led the Chancellor to announce a delay to the scheme in his Budget statement.

It was due to be introduced next April but now will not apply to businesses with a turnover below the VAT threshold until April 2019. The committee says it needs to be delayed further to give firms more time to prepare.

In its report published today, the Lords’ committee says the roll-out of the scheme is being rushed and is imposing “unnecessary burdens” on small businesses at the same time that other changes are being introduced. 

It says the change will yield little benefit to the Government and that not enough consideration has been given to support those lacking digital skills.

The report points out that HMRC’s own research shows that 61% of the self-employed can’t, or need help to interact with the Government online.  

The committee says that the digitalisation of tax is to be welcomed, but recommends a series of modifications to ensure the policy is implemented successfully.

It says the claim that the scheme will initially cost businesses £280 does not reflect the reality of the initial expenses businesses will incur.

It wants the scheme to be delayed until 2020 to allow a full pilot.

This delay would allow the Government to test whether Making Tax Digital does reduce taxpayer errors, assess the actual costs to business, and receive valuable feedback from business users.

It would also give the Government time to raise awareness and put in place support systems for those who lack digital skills.

The committee says that keeping digital records and quarterly reporting should be optional for businesses with a turnover below the VAT threshold.

It says that for smaller businesses the requirement to report quarterly to HMRC will impose an unnecessary burden, and will be of limited use.

It wants the Government to examine whether some businesses, such as those with seasonal or highly irregular income, should be outside the scheme.

Committee chairman Lord Hollick said: “Many small businesses and landlords are simply unaware of or not ready to cope with the additional administrative and financial burdens that will be imposed by digital taxation.”

He welcomed the government’s decision to delay introducing the scheme.

“However, this does not go nearly far enough and it needs to further delay the scheme’s implementation, and take a more incremental and gradual approach based upon the evidence from the pilot.

“This scheme coincides with changes to business rates and dividend taxation, all of which will impact some small businesses.

“A full pilot will ensure the software works and provide hard evidence of the additional financial and administrative burdens on businesses. It will also provide evidence in place of the widely disbelieved assessment of costs and benefits of the introduction of Making Tax Digital.

“We are sceptical of the benefits to small businesses of regular digital reporting. We recommend that the scheme remains optional for businesses with a turnover below the VAT threshold.”

Responding to recommendations, Yvette Nunn, co-chairman of ATT’s technical steering group, said:The report should give the Government the impetus to tap on the brakes on this juggernaut, to allow more time for full end-to-end testing, piloting and evaluation to avoid unnecessary logistical and financial risks for both HMRC and businesses.

Adrian Rudd, chairman of the joint CIOT and ATT digitalisation group, said:The timetable for MTD remains extremely challenging and 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. A full pilot would ensure the software is ready and works.”

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