The House of Commons Treasury Committee has published its Tenth report of the 2016-17 session, in which it has raised concerns about the cost to businesses of Making Tax Digital proposals, as well on the proposed lead time for such a fundamental change.

While the Committee supports the idea of the digitisation of the reporting of tax, the report makes clear that it believes that just over a year is too short a lead time for such a fundamental change. Instead, the Committee has advocated a comprehensive set of pilots of the system before it is made mandatory for all businesses. The report also highlights concerns about the costs to businesses of introducing MTD, as well as the continuing costs of maintaining digital records and submitting quarterly updates, suggesting that there is not yet enough information about the free software that will be available.

Background

With its Making Tax Digital agenda, the Government is proposing that, subject to a relatively small number of exceptions, all businesses will be required to keep their accounting records in a prescribed digital format and submit quarterly updates to HMRC. These updates will be followed by an end of year reconciliation to ensure that the entire year’s activities are properly recorded for tax.

CTG has been told that no organisation that is unable to implement the proposals will be forced to do so, but we are continuing to call for assurances on this by way of a charity exemption from the requirement to move operations online. In this way, it should be possible for those charities with the capability to benefit from the online system, while not penalising organisations lacking either the necessary resources or expertise.

It is proposed that businesses will start this form of record keeping and reporting for income tax and National Insurance from 1 April 2018 or 1 April 2019, depending on their size, and for VAT from 1 April 2019.

The Government consulted on its proposals over the summer and early autumn of 2016 and it is proposing to respond to that consultation, and publish draft Finance Bill clauses to legislate for the necessary changes, in January 2017.