Treasury Committee chair Andrew Tyrie says a pilot is needed to settle disagreement over business costs from taxes going digital

Rebecca Smith
Businesses are in disagreement with HMRC over the costs from the proposed tax changes (Source: Getty)

The chair of the Treasury Committee has recommended that a pilot is needed on the government's Making Tax Digital project, as businesses and the taxman are at odds over the "administrative burden" involved.

Andrew Tyrie said he had received replies from Jane Ellison MP, financial secretary to the Treasury, and Mike Cherry, national chairman of the Federation of Small Businesses (FSB) on the compliance cost of the proposed new system where firms will be required to keep their records in a digital format.

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“There are huge differences between the FSB and HMRC about the administrative burden of making tax digital. This is the heart of the matter," said Tyrie.

The FSB believes that with the new system, businesses could spend three times as much time on their tax obligations as they currently do, which could cost around £3,000 a year in time, salaries and accountants' fees.

Tyrie added:

HMRC think that they will spend less time, leading to a small net saving. A comprehensive pilot should shed some light on which assumption is closer to reality.

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Tyrie said the disagreement reflected the need for the implementation of the Treasury Committee's recommendation for "a comprehensive pilot" of the system and "before mandatory roll out of the digital regime".

He has written to the Administrative Burdens Advisory Board to ask for a view.

In Philip Hammond's spring Budget, the chancellor announced the digital change had been delayed by one year for firms below the VAT threshold to give them more time to prepare for the changes.

“I have decided that for businesses with turnover below the VAT registration threshold I will delay by one year the introduction of quarterly reporting at a cost to the exchequer of £280m," Hammond said, after acknowledging concerns about the timetable, raised by business organisations.

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