19 Sep 2016 01:00pm

Treasury Select Committee chair urges caution on Making Tax Digital plans

Andrew Tyrie, chairman of the Treasury Select Committee has written to the chancellor, warning of "considerable cause for concern” with HMRC’s "Making Tax Digital" proposals
Caption: TSC chair calls on Philip Hammond to delay HMRC's Making Tax Digital plans

Tyrie has called on Philip Hammond to delay the UK tax authority’s plans to create a digital tax system – which will be gradually introduced between 2018 and 2020 - warning it is “better to get it right than to stick to a rigid timetable”.

HMRC published six Making Tax Digital consultations in August, allowing one month per consultation to consider people’s responses.

Tyrie said a number of businesses have expressed “a good deal of concern about MTD” and he is concerned that more will emerge over the coming weeks as businesses digest the information in the consultation papers.

“There may be a case for delaying implementation of MTD,” he wrote.

The new requirement for digital record keeping and reporting is far more than simply entering a handful of totals

Treasury Select Committee chair Andrew Tyrie

“A year’s extension for an unspecified group of businesses may not be enough.”

As well as the issue of timing, Tyrie also highlighted that “there remains considerable concern with the proposals” themselves.

He raised concerns once again that the new rules would require taxpayers to update their digital accounts “at least quarterly”.

“The new requirement for digital record keeping and reporting is far more than simply entering a handful of totals”, Tyrie stressed. “It is tantamount to prescription by HMRC, for the first time, of a particular form in which accounting records must be maintained.”

Tyrie sought more information on what free digital tools will be available and for whom and also asked how long the software can be assured as being free of charge.

He asked for clarity on how the quarterly updates will align with Universal Credit monthly updates, which the low paid will also be required to submit.

He also questioned how many traders would actually benefit from the £10,000 exemption announced last month, asking how traders slightly over the exemption will fare from their burdens increasing.

HMRC has estimated that the Making Tax Digital changes will help to reduce the tax gap and contribute £945m to the exchequer by 2020.

Tyrie stressed that if implemented carefully, HMRC’s MTD proposals “could do some good”. However, he also warned that the plans “could also do much harm”.

“The consultation is therefore crucial,” he wrote. “It needs to be meaningful.”

The Treasury Select Committee chair said the Treasury and HMRC will “need to carefully consider all the comments” from the lengthy and complex consultation papers and raised concerns that they may not have enough time to do so if the implementation of MTD is rushed.

"These proposals have already been in the making for nearly two years. The earliest that they could be implemented is 2018. This timetable, with draft Finance Bill clauses published around the time of the Autumn Statement, may make it difficult to respond adequately to the points made in the consultation,” he warned.

“Much depends on the consultation responses. They may require a delay. Getting this right matters a lot, particularly to the small businesses who could be hit hard by a mistake."

Tyrie added, “There may also be merit in piloting the systems.”

We also believe that the implementation timetable is too ambitious

Frank Haskew, tax faculty head at ICAEW

“From this, the lessons from customers’ experience can be learnt, and well before digital reporting is made mandatory.”

Frank Haskew, head of ICAEW's tax faculty, welcomed Tyrie's comments.

"We are concerned that that the time between the deadline for responding to these consultations and the publication of draft legislation for the Finance Bill 2017 is too short to allow the time needed for full and detailed consideration of the feedback. We also believe that the implementation timetable is too ambitious," he said. 

"If this is to work successfully, the start dates for digital reporting need to be put back to give businesses more time to make the extensive changes to their business processes.

"More generally, while we support the move to digital, we are very concerned about a number of aspects to this consultation, in particular the mandatory quarterly reporting of transactional data.

"We also agree that the £10,000 exemption threshold is far too low: businesses with turnovers below that level are unlikely to be paying tax anyway. Initial feedback from our members clearly favours a limit nearer the VAT threshold." 

The consultation period will run until 7 November 2016.

Sinead Moore


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