ICAS supports House of Lords Making Tax Digital recommendations
ICAS welcomes the publication of the House of Lords Select Committee on Economic Affairs Finance Bill sub-committee report “The Draft Finance Bill 2017: Making Tax Digital for Business” and strongly supports the recommendations made to the Government.
Charlotte Barbour ICAS Director of Taxation said, “We welcome this report and its recommendations. It echoes much of what ICAS and our members have called for from the outset.”
“ICAS submitted evidence in two tranches to the Select Committee noting that whilst we support the overall objectives of Making Tax Digital, we have significant reservations about the timescale, the mandatory approach and the impact on agents and small businesses.”
The report’s recommendations
The report’s main recommendations to the Government should promote successful implementation and address some of our key concerns:
- Revise and improve its assessment of Making Tax Digital’s benefits and costs: The Government's estimate of the 'tax gap' savings are fragile and not based on adequate evidence. The assertion that the scheme will initially cost businesses £280 does not reflect the reality of the initial expenses businesses will incur.
- Delay the scheme until 2020 to allow a full pilot : This delay will allow the Government to test whether Making Tax Digital does reduce taxpayer errors, assess the actual costs to business, and receive valuable feedback from business users. It also gives the Government time to raise awareness and put in place support systems for those who lack digital skills.
- Make keeping digital records and quarterly reporting optional for businesses with a turnover below the VAT threshold: For smaller businesses the requirement to report quarterly to HMRC will impose an unnecessary burden, and will be of limited use.
- Look again at which businesses are included in the scheme: The Government should examine whether some kinds of business, such as those with seasonal or highly irregular income, should be outside the scheme.
Small businesses not ready for MTD
ICAS agrees with the comments of Lord Hollick, the Chairman of the Sub-Committee, that many small businesses are unaware of or not ready to cope with the additional administrative and financial burdens which will be imposed by Making Tax Digital.
“The Budget announcement of a delay until April 2019 for businesses with a turnover below the VAT threshold was welcome but does not go far enough.
“A more gradual approach to implementation should be adopted, taking account of evidence from a full pilot and it should remain optional for businesses with a turnover below the VAT threshold,” said Charlotte Barbour.