Tax & admin · 5 April 2017

HMRC launches Making Tax Digital pilot in preparation for full roll-out

Making Tax Digital
HMRC announced plans for a wide Making Tax Digital pilot in January

HMRC has begun to distribute invitations for a Making Tax Digital pilot, giving a small number of business owners the chance to road-test the incoming digital tax system.

Due for a full introduction in April 2018, the switch to digital self-assessment tax returns will require accounts to be submitted four times a year.

In January, the tax office announced plans for a “year-long” Making Tax Digital pilot for “hundreds of thousands” of tax payers, and a recent post on the Tax Agents blog confirmed the Making Tax Digital pilot would “start with small numbers but aim to have hundreds of thousands of small businesses and their agents taking part”.

The Treasury select committee, which has been scrutinising the digital economy bill that comprises the switch to digital tax returns, has previously raised concerns over a pilot of the scheme. It warned it would not give a realistic reflection of how Making Tax Digital will affect the most vulnerable businesses, as such owners would be likely to decline the invitation.

HMRC has advised those yet to receive an invite to begin recording income and expenditure information digitally, either on spreadsheets or accounting software, to prepare for a smooth transition next April.

The costs of switching to digital tax returns for small business owners and the self-employed has been a great issue of contention since the government confirmed its plans. HMRC’s own predicted costs differ greatly with calculations put forward by the Federation of Small Businesses (FSB).

The FSB suggested quarterly tax reporting on unfamiliar software would inflict annual costs of £2,770 on the average small business owner. The tax office has insisted that costs would only reach £280 per year.

The rectify the conflict, the Treasury select committee recently ordered an independent review of costs by the Administrative Burdens Advisory Board (ABAB).

Andrew Tyrie, the MP leading the committee, recently said that a “comprehensive pilot” of Making Tax Digital was necessary to gain an understanding of the real impact on small businesses.

FSB chairman Mike Cherry agreed that a full-scale pilot was necessary.

“Comprehensive testing of the programme is critical to minimising the disruption it will cause to small firms at a time when the costs of doing business are at their highest since the beginning of 2014,” he said in a statement.

The question of software has also been a major concern for the small business community. Following a public consultation, the tax office hinted that spreadsheets would be sufficient for submitting accounts.

HMRC has said it will publish a list of providers developing compatible software later this year. However, only some of this software will be free for tax payers.

In the Spring Budget, chancellor Philip Hammond confirmed a year’s delay for firms with turnover under the VAT threshold, exempting up to 3.1m small business owners.

Have you been invited into the Making Tax Digital pilot? Get in touch with us at and share your experiences with fellow business owners

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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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