Chancellor urged to consider delaying digital tax plans

Treasury Committee chair Andrew Tyrie - Image credit: PA Images

Westminster Treasury Committee chair Andrew Tyrie has urged the Chancellor to consider delaying implementation of HMRC's Making Tax Digital plans.

In a letter to Philip Hammond, Tyrie raises concerns about the timing of the consultation on the plans, which was launched last month, and suggested the focus should be on ensuring the reforms work properly.

“HMRC's proposals are major changes," he wrote. "There remains considerable cause for concern with the proposals. Better to get it right than to stick to a rigid timetable.”

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Making Tax Digital (MTD) sets out HMRC's ambition to have a fully digital tax system by 2020.

Most businesses will be required to provide quarterly updates to HMRC from 2018 and keep their records digitally – although small businesses have been granted an exception to the new rules.

The Conservative MP acknowledged that MTD “may improve the customer experience for a growing number of people who are able to engage digitally”.

For example, it could allow businesses to explore the consequences of tax decisions by providing 'what if' modelling through the online system.

“Implemented carefully, it could do some good,” Tyrie wrote. “But it could also do much harm. The consultation is therefore crucial. It needs to be meaningful. There may be a case for delaying the implementation of MTD.”

HMRC's roadmap for the policy, which was published last year, says that implementation will be phased from April 2018 to 2020. It includes a consultation period, with the department publishing six separate consultations on the impact of different groups of businesses and tax payers.

Tyrie said his committee had heard many concerns from businesses about MTD.

For example, details about how much information will be needed in digital records is “tantamount to prescription by HMRC, for the first time, of a particular form in which accounting records must be maintained,” Tyrie says.

He also notes that although businesses with a turnover of under £10,000 will be exempted, those with a turnover just above this threshold could find the changes “very burdensome” if they are obliged to change their working practices, for example by hiring a bookkeeper four times a year rather than just once.

“More [concerns] may emerge over the coming weeks, as businesses digest the huge amount of detail in the consultation papers,” he said.

The Chancellor has asked HMRC to provide legislation for the plans in next year's Finance Bill. This means draft proposals for the legislation would be expected at the end of November this year. 

However, Tyrie warned that this would leave little time to consider responses to the consultations and make any necessary amendments after the consultation closes on 7 November.

As well as advising that the legislation might need to be delayed and "a year's extension for an unspecified group of businesses may not be enough,” he suggested a pilot of the new system could help.

“There may also be merit in piloting the systems. From this, the lessons from customers' experiences can be learnt, and well before digital reporting is made mandatory.”