Tax & admin · 20 March 2017

Small businesses back House of Lords’ digital tax proposals

Making Tax Digital initiative
Among the digital tax proposals put forward by the committee was a two-year delay to Making Tax Digital

The Federation of Small Businesses (FSB) has backed a House of Lords report that calls for significant digital tax proposals, including a full delay of Making Tax Digital until 2020.

Current plans for fully digitised tax returns, set to be introduced in April 2018, were rebuffed by the Economic Affairs Committee in a review of the government’s draft finance bill, which outlined reforms to support small business owners in compliance.

Among the digital tax proposals put forward by the committee were recommendations to delay the scheme for a further two years, giving government time to fully pilot and raise awareness of the switch, and to re-assess the benefits and costs of Making Tax Digital to small business owners.

The report stated that current government assessment of the costs and benefits of Making Tax Digital were “not based on adequate evidence”.

Lord Hollick, chairman of the Economic Affairs Committee stated that government needed to better protect vulnerable business owners already braced for business rate hikes and cuts to the tax free dividend allowance.

“Today’s cross-party report from the House of Lords backs FSB proposals to make the government’s Making Tax Digital programme work,” said Mike Cherry, chairman of the FSB.

In the recent Spring Budget, chancellor Philip Hammond stated that businesses and sole traders under the £81,000 VAT threshold would be given a year’s delay in compliance, entering in April 2019.

“This does not go nearly far enough,” Hollick told the committee. “[The government] needs to further delay the scheme’s implementation, and take a more incremental and gradual approach based upon the evidence from the pilot,” he added.

Cherry agreed that raising the barrier of entry was crucial in protecting those likely to be affected the most.

“A delay to 2020 would give hard-pressed business owners time to get their systems ready, and a higher exemption threshold would take out those that are going to be struggling the most with this change. In addition, we want to see a more comprehensive impact assessment as more details of the scheme become clear,” he added.

In response to a pubic consultation in January 2017, HMRC confirmed that an exemption threshold of £10,000 would be introduced, removing obligations of the UK’s smallest businesses. Among other digital tax proposals, HMRC stated that business owners would be able to test submission software, and hinted that spreadsheets could be used to submit tax records.

The Economic Affairs Committee heard in February from Roger Southam, a member of the Administrative Burdens Advisory Board (ABAB), a body within HMRC, that small business owners could face a “ten to twelve-year payback” following the switch to digital tax returns.

Southam added that some would “never see a return” on their investment.

“The burden and sheer costs to get there are huge,” he warned. “For [owners of] smaller businesses, they won’t only be buying into software, some won’t even have the equipment. So you’re actually buying hardware as well as software.”

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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