Treasury Committee says timetable for change looks unachievable and that small businesses will suffer from new burden
An overhaul to put all tax reporting online with compulsory quarterly updates – which could affect local authorities – will be a “disaster” if it is rushed, MPs have warned.
The Government’s Making Tax Digital (MTD) project has been strongly criticised in a report by the Commons Treasury select committee.
A key feature of MTD will be a move away from annual tax returns for business towards digital record keeping and quarterly updates to HM Revenue & Customs. Most organisations will be forced to carry out their accounting in a set electronic format and submit quarterly updates to the taxman, in a phased introduction from April 2018.
But the report warns they could put companies out of business or encourage tax avoidance because of the additional costs and administrative burdens, particularly for the smallest businesses.
It also cast doubt on an official forecast suggesting the shake-up would bring in an additional £625 million for the Treasury.
Threat to revenue
The changes are more likely to result in lost revenue for the taxman because of the anger provoked among taxpayers, the committee said.
Andrew Tyrie, its Conservative chairman, said the 2018 timetable “looks unachievable” and called for a delay until at least 2019 to allow concerns to be addressed.
He said: “There has been insufficient engagement and consultation with the business community.
“At present, many of those on whom demands will be made - millions of small businesses up and down the country, the backbone of the economy - are ill equipped to handle the reporting requirements.”
Calling for delay, Tyrie added: “The long term future can, and probably should, be digital. Better to take care on the road than to have a road accident.”
The report states that a consultation produced a long list of suggestions of organisations that should be exempt from MTD – including local authorities.
It concludes: “HMRC’s current approach will require it to give very careful consideration to the many requests for specific exemptions, particularly in cases where the costs to the businesses concerned would be disproportionate.
“It may be that much more extensive transitional arrangements are preferable to an ever lengthening list of exemptions, both to reduce business costs and uncertainty and also to protect the yield.”
The Federation of Small Businesses has claimed that the changes will cost the average small company an extra £2,770 a year, in addition to the £3,600 that it already spends on tax advice. Also, accountancy association UK200Group warned in November that the MTD programme is running on too short a timescale and will impose a burden on businesses to adopt new IT systems.
Mike Cherry, national chairman of the employers' group, said that the Treasury Committee’s report was a "damning indictment of the government's mandatory tax plans as they currently stand.”
But a spokesman for HMRC said: "Many businesses find it hard to get their tax bills right. Making tax digital will modernise the tax system, helping them to get their tax bills right with the least administrative burden.
“We have consulted business at every step and have already made changes as a result to exempt the smallest businesses.”
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