David Truman 26 Apr 2017 12:09pm

Finance Bill: government defers controversy but adds to uncertainty

The snap general election has granted the UK government the perfect excuse to pick and choose which bits of incoming legislation to implement now and which to put off until a later date

Caption: Delaying Making Tax Digital is adding to the climate of uncertainty, argues David Truman.

However, when it comes to proposals to modernise tax arrangements, such as Making Tax Digital (MTD), it is important that momentum isn’t lost.

In view of the controversy surrounding MTD, it is little surprise that these particular proposals, which will require self-employed people and businesses to file tax returns quarterly, are among the measures to be deferred. While the delays are frustrating for those affected, it is obviously important that the draft legislation gets the scrutiny and consideration it deserves.

MTD is an incredibly complex area of incoming legislation where there is still a considerable lack of clarity about how exactly it will work in practice. The deadline for compliance for self-employed people and rental businesses with a turnover of more than £85,000 a year is fast approaching (April 2018) and those affected still lack guidance about how to submit their financial information and in what format.

On the face of it, the government’s decision to defer this legislation seems a sensible step, especially if it allows more time for parliamentary debate and clarification. However, as things stand, it is unclear if the deferral is temporary, pending a second Finance Bill after the election, or whether it is likely to be more permanent. Deferring legislation without any information about timescales is adding to the current climate of uncertainty, which is unhelpful to those individuals and businesses that want to plan ahead.

Despite issues surrounding the lack of information and guidance, the MTD proposals should deliver value to businesses. As technology evolves and more data migrates to the cloud, maintaining financial information in an electronic format is helping to streamline management processes and helping business owners to take informed decisions in a more agile way.

For many businesses, managing cash flow and employing cash effectively is a challenge and the move to quarterly updates should provide a more accurate and up-to-date view of their cash position and financial obligations through the course of the year.

In view of the potential gains for businesses and self-employed people, it would be a shame if momentum is lost and the legislation should be enacted as soon as industry, HMRC and Parliament concur that the system will work in practice.

Other measures dropped from the Finance Bill include rules affecting the status of non-domiciled individuals, loss relief carry forward and dividend allowance restrictions. In each case, the complexity and controversial nature of the proposed changes is likely to have influenced the decision to defer them. However, again the lack of timescales is unhelpful.

David Truman is a tax partner at accountancy firm, Menzies LLP.