Jessica Fino 25 Apr 2017 01:17pm

HMRC's Making Tax Digital plan dropped from Finance Bill

The government has dropped several measures from bill, including the controversial Making Tax Digital plans, following a meeting with the Labour party
Caption: The snap election decimated the Finance Bill

It has decided to drop HMRC’s digitalisation plans, changes to corporate loss relief and interest deductibility, as well as VAT related to fulfilment houses and penalties for enablers of defeated tax avoidance schemes due to Theresa May's decision to call a snap election. The clauses will likely return in a bill after the election on 8 June.

Meanwhile, the current Finance Bill will be rushed through the House of Commons this afternoon, following just four hours of stage debate.

Anita Monteith, tax manager at ICAEW said the decision to drop the MTD plans was a “sensible" move by the government.

It came less than week after ICAEW, the Federation of Small Businesses and ACCA joined forces to call for all MTD clauses in the Finance Bill to be removed.

Monteith said, “Making Tax Digital plans remain controversial and need more scrutiny by those who will be affected, and most importantly proper parliamentary debate - a clear roadmap as to how MTD will work in practice is needed.

“MTD is not coming into effect until April 2018, and the announcement of the general election on 8 June 2017 provided an opportunity to withdraw these clauses and schedule from the Finance Bill which will be debated today and likely to be enacted on 27 April.

“These seminal clauses and schedule can be reintroduced after the election which will allow more time for proper scrutiny.”

Monteith urged the government to prioritise addressing the detailed questions that have been raised about how MTD will work in practice.

According to an assessment by the Treasury, MTD was expected save small businesses £240m by 2021-22, while the total transitional costs for SMEs would amount to £870m.

In total, transitional costs between 2017 and 2021 would be £980m for all businesses. But the FSB has claimed that the costs would be far higher, at £2,770 per year per business.

Furthermore, research from ICAEW last month found that the majority of UK businesses were not ready for MTD, and 75% of businesses do not currently maintain their accounts electronically using accounting software.

Meanwhile, Paul Aplin, ICAEW vice president, said, “MTD will be the biggest change to tax administration in two decades and it is important that MPs are given sufficient time and information to debate the legislation fully.

“We are concerned that so much is being dealt with in regulations rather than in primary legislation and again the delay will give a much better opportunity for Parliament to consider the issues around MTD as fully as they deserve.”

While recognising the “great potential” in the digitalisation plans, he pointed out that “the scale of change is such that it must not be rushed: getting it right is more important than getting it fast”.

Aplin added, “The House of Commons Treasury Committee and the House of Lords Economic Affairs Committee have both expressed support for the concept of MTD but concern over the speed of implementation and the potential burdens for smaller businesses.

"Both have recommended that businesses with turnover below the VAT threshold should be exempted and that is a recommendation I completely endorse. If MTD works well, those businesses will adopt it voluntarily.

“Now that the pilot programme has been launched we have an opportunity to test the concept and see what the benefits, challenges and costs really are. Having more factual and practical evidence will also help MPS assess the impacts when the clauses return to a Finance Bill later in the year.”

Away from MTD, Blick Rothenberg complained that the last minute row over new non-domicile rules and inheritance tax changes to UK residential properties will leave taxpayers facing a period of uncertainty.

Nimesh Shah, partner at the firm, said, “It is unbelievable that such important provisions have been dropped at the 11th hour, after the painful amount of work that has gone into the process to finalise the legislation.

“It is even more disappointing for those non-domiciled individuals who were readying themselves for the changes and arranging their affairs in the run-up to the end of the (5 April 2017) tax year.

“Non-domiciled individuals will now face a period of limbo, waiting for the outcome of the election and publication of the second Finance Bill. This will be the second time in three years that we will have two Finance Acts in a year, adding to yet more tax legislation," said Shah.