Julia Irvine 13 Jul 2017 06:03pm

Business welcomes government decision on MTD

The government’s decision to make adoption of Making Tax Digital (MTD) voluntary for the UK’s smallest businesses means that there will be a lot of accountants and small business owners out there breathing a huge sigh of relief, according to top 10 accountancy firm RSM

But the relief won’t just be confined to them, says tax consultant Andrew Hubbard. HMRC, he said, must also be relieved.

“It became increasingly obvious that the proposed timetable was unrealistic. In the end, HMRC had little choice to postpone given the level of pressure they were under from the Treasury Select Committee and the accountancy bodies, not to mention the genuine alarm being expressed by affected businesses. 

“Bearing in mind the Revenue needs to make sure that the new Customs Declaration Service is up and running before Brexit, the MTD initiative was simply one project too far.

“Today’s announcement will give HMRC some much needed time to concentrate on building the system successfully, and to make it so attractive that businesses will actively want to sign up.”

RSM was not the only organisation welcoming the government’s change of heart. Deloitte’s head of tax policy, Bill Dodwell, said it would give time for HMRC and accounting software providers to launch and fully test new systems.

“Ultimately, digital filing will be the default method, potentially bringing benefits to taxpayers and to HMRC. However changing the way in which 3.5 million taxpayers keep records and provide data to HMRC is such a major change that gradual change will be more effective.”

James Hender, partner and head of private wealth at Saffery Champness, added that it would also allow taxpayers time to get to grips with the new system.  

“Importantly, taxpayers should be under no illusions about tax’s digital future, “ he said. “This is the way the world is going and this delay is only that; a much needed extension to the transition that will help ensure the rug isn’t pulled out from anyone’s feet once MTD goes fully live.”

PwC tax partner Tony Price agreed. He warned businesses "not to lose momentum as digitalisation will enable both businesses and HMRC to operate more efficiently".

"I’d encourage businesses to start planning now and not to leave their transition to digital tax records until the last minute," he said.

ICAEW deputy president and tax practitioner Paul Aplin was also pleased by the move. “It’s great that the government has listened to both the voice of business and the profession on MTD.

“Removing mandation for the smallest businesses is a welcome step forward and is one less regulatory burden for SMEs to worry about.

“We now look forward to working closely with HM Treasury and HMRC on creating a world-class digital tax system that businesses of all sizes will want to use.”

Like ICAEW, the Chartered Institute of Taxation has spent much time over the past couple of years trying to persuade both departments to ease up on the MTD timetable.

So it welcomes the change in approach to “coaxing, rather than compelling businesses into going digital”.

“While we are supportive of the government’s long term ambitions for digitalising the tax system, we have always called for this to be achieved in a measured and manageable way. This deferral will give much more time for businesses, supported by their advisers, to identify for themselves, at their own pace, the benefits of digital record keeping.”

Mike Cherry, national chairman of the Federation of Small Business, hailed the move as a “positive decision” and a “lifeline for small firms already facing a hugely challenging economic climate”.

“Thanks to the chancellor’s intervention, they will only fall into scope when ready to do so.

“Today’s announcement promises to make the rollout of the programme far more manageable for all of the nation’s small firms.”

Johnstone Carmichael's head of tax, Susie Walker, felt the same way. “There’s a definite recognition that digital reporting is a good idea, but smaller businesses have plenty of other things to worry about at the moment. The planned pilots that were to run from earlier in 2017 didn’t happen because of the general election purdah and this revised timetable will be good news for all.

The new timetable, and allowing smaller businesses to make the change voluntarily, is a sensible move and will remove an unnecessary distraction from what’s likely to be a challenging few years for lots of businesses.”

The only commentator to sound a note of caution was Grant Thornton. Head of tax Jonathan Riley said that while it was pleasing that government had listed to businesses’ concerns, he felt that it did not “bode well for the progress of more fundamental reform of our complicated tax regime”.

“What all tax stakeholders need is a brave approach to reducing complexity, one that boosts transparency and in turn improves trust in and compliance with our tax system.”

He wasn’t happy about the announced delay in publishing the Finance Bill until after the summer recess either.

“This delay leaves uncertainty in the minds of taxpayers and their advisors. Changes announced in the last Budget will be brought back to parliament, but in the meantime no one will know for sure what the impact of those measures will be. With continued uncertainty around Brexit negotiations, corporates in particular need to plan with clarity and stability in mind.”

But Saffery Champness’s Hender was grateful for a bit of certainty even if it was on the horizon. “Many will have hoped to see the new Finance Bill published before the summer recess, but the outcome of the general election, as well as the ongoing Brexit negotiations, have meant the government has had its hands doubly full.

“However, the policies announced pre-election that were at risk of falling into the ether will be backdated to April 2017 and this will provide greater certainty for those affected. Many taxpayers, particularly non-domiciled individuals, may end up paying more tax under the new rules but they should now have more of a framework to plan their finances going forward.

“As a result, HMRC’s latest move will hopefully go some way to quelling any anxiety that taxpayers were feeling during the post-election limbo.”

The Finance Bill (No 2) 2017, which is due to be introduced in the autumn, will include the MTD legislation.

The government has also published the updated draft clauses for those provisions taking effect before the Finance Bill is introduced, where technical adjustments and additions are needed to ensure the clauses function as intended. 

The clauses are: carried forward losses and counteraction of avoidance arrangements; corporate interest restriction; deemed domicile – income tax and capital gains tax; employment income provided through third parties; hybrid and other mismatches; inheritance tax on overseas property representing UK residential property; and substantial shareholding exemption – institutional investors.