Government plans for sweeping changes to force the UK’s businesses to “digitise tax” should be delayed due to significant shortcomings, a select committee of MPs has urged.
The treasury select committee highlighted plans to require businesses to keep tax records in digital format, submit quarter updates to tax authorities and provide an end of year update – an initiative called “Making Tax Digital” – could put small firms out of business.
The administrative burden could mean small firms, which the committee called the “backbone of the economy”, may “move into the hidden economy”.
Furthermore, the committee concluded there had been “insufficient engagement and consultation with those on whom demands from Making Tax Digital will be made”.
"Taken together, these could undermine the government’s objectives,” said the chair of the treasury select committee Andrew Tyrie.
The collateral damage could be large. If the government gets it wrong, the culture of mutual trust and goodwill between HM Revenue & Customs and the vast majority of taxpayers… could be jeopardised.
This is not a minor matter. These reforms will affect millions of taxpayers.
Tyrie urged the government to make a raft of changes. These included raising the minimum threshold for the size of business required to participate in Making Tax Digital, and kicking the start date of the initiative further into the long grass.
At present a firms earning more than £10,000 will have to file digitally, the committee proposed raising this to the level at which firms must register as a VAT entity, £83,000.
And the government is keen to implement the plans by 2018, while Tyrie said: “There needs to a delay of the start until at least 2019/20, possibly later.
One of the world’s leading accounting institutes supported calls to delay the process. Frank Haskew, the head of tax of the Institute of Chartered Accountants in England and Wales said:
The clock is already ticking and we agree with the committee’s recommendation that the implementation of Making Tax Digital should be delayed.
The treasury committee did, however, agree with the government on the government’s direction of travel. “The long term future can, and probably should, be digital,” said Tyrie.
Tyrie added: “Better to take care on the road to it [digital records] than to have a road accident.”