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Delay Making Tax Digital for business, says House of Lords on Finance Bill draft

The House of Lords Economic Affairs Committee has released a report on the draft Finance Bill 2017 which covers the much anticipated subject, Making Tax Digital (MTD) for business.

The House of Lords Economic Affairs Committee welcomes digitisation, but to ensure that the policy is implemented successfully they have recommended that the government should delay launching MTD until 2020, and make it optional for the self-employed and for small businesses below the VAT threshold.

Lord Hollick, chairman of the House of Lords Economic Affairs Committee, said: “We welcome the Government’s announcement in the Spring Budget that the scheme would not apply to businesses with a turnover below the VAT threshold until April 2019. However, it needs to further delay the scheme’s implementation, and take a more incremental and gradual approach.”

The government’s MTD plans will affect 1.6m companies, 2.4m self-employed people and almost 1m residential landlords. Accountants and those working in business or professional services have shared concerns that the scheme is being rushed, with unnecessary burdens particularly on small businesses, including the mandatory quarterly reporting to HMRC.

According to the Committee, MTD’s benefits and costs should be revised and improved by the government, who estimated ‘tax gap’ savings from the plans, which are not evidence based. HMRC’s own estimate showed that it would take over 10 years for businesses to recoup their aggregate initial outlay.

The recommended delay will allow the testing of whether MTD does reduce taxpayer error, provide time to assess costs to businesses, raise awareness to place support systems, and to receive feedback from users. The government should also examine whether some kinds of business, such as those with seasonal or highly irregular income, should be outside the scheme.

As the full details have not been released for the development of MTD, software companies do not have the technical details or system requirements to create business compliance software. Also, not enough consideration has been given to support those lacking digital skills, according to HMRC’s research 61% of the self-employed need help to interact with the government online.

“Many small businesses and landlords are simply unaware of or not ready to cope with the additional administrative and financial burdens that will be imposed by digital taxation,” Hollick added.

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