Danny McCance 22 Nov 2018 11:27am

HMRC slammed over MTD for small businesses

Making Tax Digital (MTD) for VAT will cost far more than was predicted in HMRC’s impact assessments

The House of Lords Economic Affairs Committee has criticised the Revenue, saying it “inadequately considered the needs and concerns of smaller businesses”.

It said HMRC neglected its duty to support small businesses through the implementation of the controversial tax, suggesting it “will make life even more difficult” for them.

Furthermore, the committee said it “remained unconvinced” of the government’s logic used to justify the “speed and rigidity with which the programme is being introduced”.

“HMRC are not listening to small businesses, while offering a six-month deferral to many in the public sector,” Economic Affairs Committee chairman Lord Forsyth argued.

“Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April [2019], particularly with Brexit taking place three days earlier.

“The government must delay its introduction,” he added.

The committee found that as many as 40% of the 1.2 million businesses for which making tax digital could be mandatory have not even heard of the controversial reform.

It said it was unfair to expect businesses to make decisions about software without having a better understanding.

“We are disappointed that the committee’s report doesn’t reflect HMRC’s wide and significant engagement on [MTD] over the last three years, nor the changes made as a result for small businesses,” an HMRC spokesperson said.

They pointed out that HMRC made changes to the “scope and timetable” of the reform in July 2017 so that all businesses – “particularly the smallest” – could prepare after receiving feedback from the committee, representative groups and parliament.

“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,” the spokesperson added.

Anita Monteith, ICAEW tax manager, said the ICAEW support HMRC's ambitions to to embrace digital technology but share the concerns of the committee that many businesses are not ready for implementation – it was research from the organisation that found that more than 40% of businesses likely to be affected are not yet aware of MTD for VAT, and that a quarter of businesses are still using paper-based accounting systems.

"Direct communication by HMRC about this major change is only just beginning and with only four months to go, there is not enough time for businesses to act.

"Time is running out. MTD for VAT is a major change in tax administration and, with its start date coinciding with Brexit, it is important for businesses, the economy and the UK tax system that it is a success. This is too important to be rushed," Monteith said.

The Association of Independent Professionals and Self-Employed today also said that it supported the recommendations set out by the committee but is concerned about the speed of implementation.

At the beginning of the month, the British Chambers of Commerce called for MTD to be delayed to April 2020 due to low levels of awareness and proximity to Brexit.

Reports in July found that Brexit could cost the Revenue “billions” of pounds by delaying a number of digital projects including MTD.