The Making Tax Digital system will be voluntary for smaller organisations, while larger groups will only have to use it for VAT filings until at least 2020
The government has delayed the timetable of its controversial Making Tax Digital policy in response to pressure from critics including the Treasury Select Committee, which had argued the schedule was “unachievable”.
The plan initially called for businesses from a threshold of £10,000 in revenues to keep digital tax records and file digitally four times a year with a reconciliation at year-end, but critics said the scheme would place unrealistic demands upon small businesses and claimed the government hadn’t sufficiently consulted with the business community.
As part of last week’s revised Finance Bill the businesses will now be allowed to move from manual to online self-assessment “at a pace that is right for them”, with no deadline having been set.
The bill also requires only businesses with a turnover in excess of the £85,000 VAT threshhold to keep digital records, and only for VAT purposes, starting from 2019, giving them two years to adapt.
Businesses will not be asked to keep digital records or to update HMRC quarterly for other taxes until at least 2020, the government said, and not until the system has been shown to work well.
VAT already requires quarterly returns, meaning businesses won’t need to provide information to HMRC more regularly during this initial phase than they do now.
The changes mean the system is voluntary for about three million of the smallest businesses and landlords, and for taxes other than VAT.
“Businesses agree that digitising the tax system is the right direction of travel,” said finance secretary Mel Stride. “However, many have been worried about the scope and pace of reforms. We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”
The government said HMRC has begun piloting MTD services and will continue to do so. As of April 2019 businesses above the VAT threshhold are to be required to provide their VAT information to HMRC using MTD software.
The original timeline for MTD had envisioned a move to a fully digital tax system by 2020.
The outcry over the scheme was less to do with switching to digital tax software than the prospect of filing and paying taxes to HMRC each quarter, something that would be onerous for smaller organisations, said TechMarketView founder and analyst Richard Holway.
“The thought of doing this every quarter appalled me,” he wrote in a blog post. “So the concessions… seemed sensible. But, there again, why were these policies and timescales put forward in the first place?”
Andrew Tyrie MP, who until last week chaired the Treasury select committee, had argued the programme risked discrediting the government’s approach to going digital and threatened the “culture of mutual trust and goodwill between HMRC and the vast majority of taxpayers”.
He had argued for more extensive pilots, saying a “fully functioning market” for the needed software was essential, including adequate free software for smaller and less complex businesses.
Do you know all about public sector IT – the triumph and the tragedy? Take our quiz!