The UK Government has delayed its plans for the digital transformation of the tax system (MTD) after professional bodies, businesses and MPs raised concerns about the pace of the changes and the unnecessary burden places on small businesses.
HMRC’s Making Tax Digital project, funded by the government for £1.3bn, was due to be introduced in April 2018 where businesses would have to submit quarterly reports of profits online, also to report on digital VAT from 2019, and for large partnerships to report from 2020.
In the new timetable only businesses with a turnover above the £85,000 VAT threshold will have to keep digital records from 2019 and businesses will not be asked to keep digital records or update quarterly for other taxes until at least 2020. Smaller businesses can volunteer to move to digital reporting.
Treasury financial secretary Mel Stride said: “Many businesses have been worried about the scope and pace of reforms. We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”
Professional bodies and accounting firms welcomed the new timetable, although some like RSM tax consultant Andrew Hubbard expressed little surprise in hearing the government announcement.
“In the end, HMRC had little choice to postpone given the level of pressure they were under from the Treasury Select Committee and the accountancy bodies, not to mention the genuine alarm being expressed by affected businesses,” he said. “Bearing in mind the Revenue needs to make sure that the new Customs Declaration Service is up and running before Brexit, the MTD initiative was one project too far.”
ICAEW technical lead and senior policy adviser at the tax faculty Anita Monteith said that the decision had restored her faith in the consultation process.
“We kept telling them that we didn’t have a problem with digital but needed more time. We saw so many things that needed to be fixed. I think they underestimated enormously the scale of the task. So it is a huge relief and it really does credit to the new government that they have been willing to listen,” she said.
Amongst other worries voiced by the business community was the unnecessary burden placed on small businesses already affected by a tough economic climate. Commenting on the MTD becoming voluntary for small businesses, Federation of Small Business (FSB) national chairman Mike Cherry said it was a lifeline for those businesses. Equally the Institute of Chartered Accountants in England and Wales (ICAEW) deputy president and tax practitioner Paul Aplin welcomed the move as a step forward.
However ACCA head of taxation Chas Roy-Chowdhury warned that some issues remained with the new proposals. “For voluntary MTD to be available we will still need to have all the legislation in place from the beginning,” he said. “This suggests we may still have the highly compressed initial timetable, although the scope to amend and adjust before it becomes mandatory will be there (provided Parliamentary time can be found).”
There is also still a worry about the timing of VAT reporting, according to Roy-Chowdhury, as many of the largest businesses have a 2 year lead for their software systems to cope with the change, but it is well past the cut-off date to start development, there is not even draft legislation, and Brexit may change the nature of VAT as well. ATT president Graham Batty said that it’s not about just to make tax digital, but to make tax doable.
The government will publish the 2017 Finance Bill after the summer recess to legislate all the policies that were included in the pre-election Finance Bill.
Yet Grant Thornton head of tax Jonathan Riley sounded caution that it does not bode well for the progress of more fundamental reform of the UK’s complicated tax regime.
“This delay leaves uncertainty in the minds of taxpayers and their advisors. Changes announced in the last Budget will be brought back to parliament, but in the meantime no one will know for sure what the impact of those measures will be. With continued uncertainty around Brexit negotiations, corporates in particular need to plan with clarity and stability in mind,” he said.
Saffery Champness partner and head of private wealth James Hender commented: “Many will have hoped to see the new Finance Bill published before the summer recess, but the general election, as well as the ongoing Brexit negotiations have meant the government has had its hands doubly full.”
Deloitte head of tax policy Bill Dodwell said that deferring major changes will give time for HMRC and accounting software providers to launch and test fully new systems. “However changing the way in which 3.5m taxpayers keep records and provide data to HMRC is such a major change that gradual change will be more effective,” he said. Dodwell added that digital filing would be the default method, benefitting taxpayers and HMRC.
Regardless of the delay and uncertainty over where the chips will fall, accounting professionals are conscious that in an age of cloud technology and constant digital innovation, MTD will come to life regardless of delays. As Hender concluded: “This is the way the world is going and this delay is only that; a much needed extension to the transition that will help ensure the rug isn’t pulled out from anyone’s feet once MTD goes fully live.”