.png)
.png)
HMRC is not taking seriously enough the risks to implementation of MTD
Making Tax Digital for VAT should be delayed by at least one year and the government should wait until April 2022 before extending it to other taxes so lessons can be learned from implementing the initiative.
These are the recommendations of the House of Lords’ Economic Affairs Committee’s report, Making Tax Digital for VAT: treating small businesses fairly.
The lords considered many businesses would not be ready for the introduction of MTD for VAT in April 2019 and that HMRC had inadequately considered the needs and concerns of smaller businesses.
The committee welcomed attempts to modernise HMRC’s systems and increase efficiencies for taxpayers, but remained unconvinced by the Revenue’s claims that digitalisation would narrow the tax gap by reducing errors in submissions.
The report concluded that neither the government nor HMRC had listened the warnings in the committee’s report on MTD for business in March 2017.
Lord Forsyth of Drumlean, who chairs the committee, said: ‘HMRC has neglected its responsibility to support small businesses with MTD for VAT. It is not listening to small businesses, while offering a six-month deferral to many in the public sector. Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier. The government must delay its introduction.’
Other report findings include:
- HMRC is alone in its confidence that all one million businesses will be ready for MTD for VAT in April.
- The costs to businesses of MTD for VAT will be far more than HMRC’s impact assessment.
- HMRC must publish how its communication and support systems will meet the needs of taxpayers and agents across different levels of digital capability and skills.
- So far, no free software products have been offered.
- The penalties regime could be fairer and encourage taxpayers to remedy defaults promptly by offering a longer grace period before fines for late payment are applied.
The ICAEW supports HMRC’s ambition to embrace digital technology but agrees with the committee that many businesses will not be ready for implementation. Anita Monteith, ICAEW tax manager, said: ‘Direct communication by HMRC about this major change is only just beginning and, with only four months to go, there is not enough time for businesses to act.
‘Time is running out. MTD for VAT is a major change in tax administration and, with its start date coinciding with Brexit, it is important for businesses, the economy and the UK tax system that it is a success. This is too important to be rushed.’
Welcoming the committee’s recommendations to slow the introduction of MTD for VAT, head of team at the Low Income Tax Reform Group Victoria Todd said: ‘We are concerned that HMRC has not yet published detailed information as to how exemption from MTD for VAT may be obtained. As it is likely to take some time to get a decision under any process introduced, if someone is denied an exemption when they were expecting to get it, they will now have very little time to get themselves ready to go digital by April 2019 – this is completely unacceptable.’
She added that LITRG was pleased the committee recommended the government reconsider the case for software provision: ‘We continue to urge HMRC to provide some basic free software that small businesses could use to help them to comply with their obligations and hopefully make the process easier.’
Just 36% of businesses are prepared for the new regime and 48% have no plan in place, according to a survey by Moore Stephens.
Nick Warner, VAT partner at the firm, said: ‘Many businesses simply lack the time and resources to prepare for Brexit and MTD at the same time. Some have not even started the complex process of digitising all their VAT reporting links and upgrading their software and systems.’
House of Lords report: tinyurl.com/y6wdc4xo
