The Government’s ambitious Making Tax Digital (MTD) tax plans risk becoming a ‘disaster’ according to the treasury select committee
The proposals outline plans to digitise the way in which landlords pay tax and would see them required to use special software or apps to keep their business records, updating HMRC quarterly.
Making Tax Digital was due to be phased in from next year. The current plan is to start quarterly reporting from April 2018 for landlords and self-employed.
However the Treasury Select Committee has warned it has found ‘serious shortcomings’ within the proposals – warning reforms are being introduced too quickly and without quality consultation.
Its report quotes evidence provided by the Association of Taxation Technicians which concluded the impact of introducing such widespread changes within such a short timescale could be ‘disastrous’.
It said: “Making Tax Digital is an overly ambitious project, given the suggested timescales, and there are very genuine concerns that forcing digital record keeping on small businesses and landlords in such a short timescale will have a potentially disastrous effect on the UK tax system.”
The report concluded the implementation date should be put back to 2019/20 and highlighted issues around the costs and administration of the scheme.
Treasury committee chairman Andrew Tyrie said: Without sufficient care, MTD could be a disaster.
“Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, Making Tax Digital could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither.”
He added: “The collateral damage could be large. If the Government gets it wrong, the culture of mutual trust and goodwill between HMRC and the vast majority of taxpayers – which still exists in the UK and which helps to keep the tax gap down – could be jeopardised.”
He concluded the Government must now change its approach.
The RLA was among those to raise concerns that the scheme was being rushed in its response to the Government consultation and asked what would happen if landlords did not have access to the required technology. Questions were also asked about the security of the system.
The association asked for the phased introduction of MTD – which should be voluntary at first – and exemptions for small-scale landlords and those without the technical knowhow to use the new systems.
The report noted that when it launched its consultation on the plans, the Government decided to “exempt the smallest businesses and landlords from digital record-keeping and quarterly updates” following “months of constructive engagement with business and agent groups.”
In it Mr Tyrie said the Government must abandon plans for an initial threshold of £10,000, saying the committee has no evidence strong enough to justify a threshold below the VAT threshold, of £83,000.
He also said it must put back the implementation date and run closely monitored pilot schemes.
Technology issues were also raised. The committee said a fully functioning market in appropriate software is essential, including adequate free software for smaller and less complex businesses.
To read the full report click here.