Digital timetable delayed to ‘at least’ 2020 for small businesses

Businesses will not be compelled to use the Making Tax Digital (MTD) system until April 2019 and then only to meet their VAT obligations, the Treasury has announced. This will apply to businesses that have a turnover above the VAT threshold. The smallest businesses will not be required to use the system, although they can do so voluntarily.

 

Mel Stride, Financial Secretary to the Treasury, said the government had listened to concerns about the pace of change and was taking steps to ensure a smooth transition to a digital tax system.

The Treasury stated that, under the new timetable:

 

It added ‘MTD will be available on a voluntary basis for the smallest businesses, and for other taxes.’ As a result, businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system. Further, since VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than now.

 

All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.

 

HMRC began piloting MTD in April and will continue testing the system with businesses. It will start to pilot MTD for business for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live trial in spring 2018. The Treasury said: ‘This will allow for well over a year of testing before any businesses are mandated to use the system.’

 

The tax community has welcomed the Treasury’s announcement. Paul Aplin, partner at A C Mole and Sons and ICAEW deputy president, said: ‘In my article “No quills approach” (see Taxation, 24 November 2016) I lamented the fact that the word “mandation” was getting in the way of a truly collaborative approach to building better digital tax administration. The ministerial announcement on 13 July removes that roadblock to progress and means that we now have the conditions in which all stakeholders – agents, businesses, software developers and HMRC – can work together to build something that delivers for all.

 

‘If we get it right, businesses will want to use it and my sense is that there is already real momentum in the marketplace for greater use of software and apps. Letting that momentum drive take-up is far better than forcing the issue. Full marks to ministers for listening.’

 

John Preston, CIOT president, said the institute was ‘delighted that the government has relaxed the timetable for MTD and appears to be basing its approach on coaxing rather than compelling businesses into going digital’. 

 

He added: ‘While we are supportive of the government’s long-term ambitions for digitalising the tax system, we have always called for this to be achieved in a measured and manageable way. 

 

‘This deferral will give much more time for businesses, supported by their advisers, to identify for themselves, at their own pace, the benefits of digital record keeping. It will also ensure that many more software products can be developed and tested before mandation is reconsidered.’

 

Anne Fairpo, chair of the Low Incomes Tax Reform Group, said: ‘The deferral to at least 2020 for taxes other than VAT is welcome and should give enough time for thorough testing. It will also provide an opportunity for businesses to familiarise themselves with the systems well in advance.

 

‘LITRG has been supportive of harnessing the benefits of technology to make the payment and administration of tax easier and cheaper for both taxpayers and the exchequer, but strongly believes that a system that is reliable, intuitive and easier to use than any alternatives will quickly attract users, whether or not its use is mandatory. It will also give HMRC time to develop free software for the smallest unrepresented businesses rather than relying on the commercial market.’

More information on MTD is at tinyurl.com/pllfdsa.