Tax & admin · 27 November 2018

HMRC accused of failing small firms and urged to postpone Making Tax Digital

The first stage of the Making Tax Digital rollout will being in April 2019

HMRC should postpone the first stage of Making Tax Digital, according to a parliamentary committee accusing the tax office of not listening to the concerns of Britain’s small business owners.

A new report, from the House of Lords Economic Affairs Finance Bill Sub-Committee, into the upcoming switch to online tax submissions claimed that many of the UK’s 1.2m small businesses would not be ready as the rollout of Making Tax Digital looms.

Making Tax Digital: The facts

From 1 April 2019, all VAT-registered businesses (taxable turnover above £85,000) will need to keep their VAT records digitally and file their returns using Making Tax Digital-compatible software.

HMRC claims the initiative will make the UK’s tax administrative more effective, efficient and easier for taxpayers to submit correct returns.

According to the committee, HMRC has “inadequately considered the needs and concerns of smaller businesses”.

The first stage of the government’s digital tax transition is due to begin with VAT returns for all VAT-registered businesses in April 2019. HMRC launched a pilot in October 2018, which the report claimed was too little, too late.

The committee also raised concerns that the six-month grace period offered to some public sector organisations, which can defer the switch for six months, was not available to small businesses, despite having “the fewest resources to manage the transition”.

“The committee therefore recommends waiting at least one year until Making Tax Digital for VAT is made mandatory, and transitioning in stages to allow businesses to join when they are ready.”

Read more about Making Tax Digital:

Peers on the committee cited the issues first raised in a March 2017 report and warned that the cost to small business owners of adopting Making Tax Digital for VAT would be higher than HMRC’s own assessments, particularly as there is no free-to-use compliant software currently available.

The committee claimed that HMRC was “alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019”.

Responding to the committee’s report, an HMRC spokesperson said the tax office had made “significant” engagement with the small business community on Making Tax Digital, and it was disappointed the report did not reflect its progress.

“In response to previous feedback from businesses, representative groups and parliament, we made changes to the scope and timetable for MTD in July 2017 to ensure businesses, particularly the smallest, have more time to prepare,” said the spokesperson.

“HMRC has already written to 200,000 businesses and will be writing to every other mandated business in the coming weeks to ensure they know about the changes and how to prepare.”

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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