A treasury select committee of MPs has urged the government to delay the move to digital self-assessment tax returns – known as the Making Tax Digital initiative – due to the threat posed to the UK’s small businesses.
The Making Tax Digital initiative, set for introduction in April 2018, will require the owners of small companies to submit tax returns four times a year, as well as providing HMRC with an end of year update.
The review, led by Andrew Tyrie, the Conservative Party MP for Chichester and chair of parliament’s treasury select committee, scrutinised government proposals for tax digitisation.
It reported that Britain’s smallest companies were the economy’s “backbone”, and concluded that the administrative burden of Making Tax Digital could force such firms “into the hidden economy” – a suggestion that business owners will avoid declaring sales for tax purposes.
The committee also highlighted “insufficient engagement” with the 1.3m micro business owners and freelancers that will be brought into the initiative. In particular, it raised “deep concerns” over the “inadequate” free tax submission software promised by government.
In assessing the potential impact on small UK businesses, several suggested changes to the plans were outlined in the report.
Under the existing plans, any business earning over £10,000 will be required to submit tax returns digitally. The committee has proposed to match the entry threshold to the VAT rate, starting at £83,000.
Tyrie stated that the government’s current timetable for the Making Tax Digital initiative threatened to hurt small firms and advised that “there needs to be a delay of the start until at least 2019/20, possibly later.
The committee accepted that “the long-term future can, and probably should, be digital”.
“Better to take care on the road to [Making Tax Digital] than to have a road accident,” Tyrie added.
In response to last November’s Autumn Statement, Chas Roy-Chowdhury, head of taxation at the Association of Certified Chartered Accountants (ACCA), made the case for a 21-month trial period for digital tax returns in order to provide a level playing field for small business owners making the switch.
The committee’s criticism of existing plans for the Making Tax Digital initiative follow research undertaken in 2016 that revealed worryingly low levels of awareness of the initiative among small businesses.
A survey undertaken by cloud accounting providers FreeAgent found that 43 per cent of small company owners “had no idea” what Maxing Tax Digital was, while 86 per cent of respondents who were aware claimed that insufficient information had been provided by HMRC of the changes.
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