Put the brakes on making tax digital, says committee

The Government should delay the launch of its '˜making tax digital for business' scheme until 2020 and make it optional for many small businesses and self-employed people, according to a report from the House of Lords Economic Affairs Committee.

Lord Hollick       Photo: PA
Lord Hollick Photo: PA

The committee’s report, which is published today, concludes that the scheme’s roll-out is being rushed and it imposes unnecessary burdens on small businesses, while yielding little benefit to the Government.

The changes, proposed by the Government in the Draft Finance Bill 2017, will affect 1.6 million companies, 2.4 million self-employed individuals, and 900,000 residential landlords.

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The committee’s report found that not enough consideration has been given to support those lacking digital skills: with HMRC’s own research showing that 61 per cent of the self-employed can’t or need help to interact with the Government online. The committee agrees that the digitalisation of tax is to be welcomed, but recommends a series of modifications to ensure the policy is implemented successfully.

Lord Hollick, chairman of the House of Lords Economic Affairs Committee, said: “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. 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, this does not go far enough and it needs to further delay the scheme’s implementation, and take a more incremental and gradual approach based upon the evidence from the pilot. This scheme coincides with changes to business rates and dividend taxation, all of which will impact some small businesses.

“A full pilot will ensure the software works and provide hard evidence of the additional financial and administrative burdens on businesses. It will also provide evidence in place of the widely disbelieved assessment of costs and benefits of the introduction of ‘Making Tax Digital’.

“We are sceptical of the benefits to small businesses of regular digital reporting. We recommend the scheme remains optional for businesses with a turnover below the VAT threshold.”