Making tax digital (MTD) - House of Lords Economic Affairs Finance Bill Sub-Committee reports on government proposals

The House of Lords Committee thinks the introduction of MTD is being rushed

Committees of both Houses of Parliament have now expressed concern over the costs to business and the implementation timetable. 

House of Lords – Economics Affairs Committee

The House of Lords publishes its report Finance Bill 2017: Making tax digital for business

Among the witnesses that gave evidence to the Committee were Rebecca Bennyworth, ICAEW Council Member and ex Chair of Tax Faculty, and David Lyford-Smith a Technical Manager in the ICAEW IT Faculty.

The report recommends four changes to the current proposals to ensure the effective implementation and operation of the government plans:

  • The Government must revise and improve its assessment of the benefits and costs of the new scheme. The Government’s estimates 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 small business operations and the initial expenses businesses will incur.
  • The Government should make keeping digital records and quarterly reporting optional for businesses with a turnover below the VAT threshold. The case for making it compulsory for smaller business has not been made. There is no evidence that these requirements will reduce taxpayer error: it does not follow that more frequently recorded information is more accurate information. The quarterly reports will impose an unnecessary burden on businesses, but will be of limited use in forecasting their tax liabilities.
  • The Government should delay the launch of the scheme until 2020. Crucial to the success of Making Tax Digital will be the software and apps. As currently planned the pilot of the software will begin in April 2017. This leaves insufficient time for the pilot to cover a full tax year, for any review of its findings, or further consultation before the full scheme launches.

This delay will also allow the Government to test the underlying behavioural assumptions; to raise awareness of the scheme amongst sectors who remain unaware of the forthcoming changes; and put in place support systems for those who are digitally excluded. The latter are vital: HMRC’s own research reveals that 61 per cent of the self employed (which may be up to two million people) are either unable to, or require assistance, to interact with Government online.

  • Finally, the government should look again at the enormous variety of businesses and should examine whether certain kinds of business, such as those with seasonal or highly irregular income, should be outside the scheme.

The report also notes that

“when the Chancellor first announced this scheme in 2015 its purpose was to “make tax easier”. 

But the report concludes that

“for many businesses the Making Tax Digital proposals no longer achieve this and will instead make taxation more burdensome.”

The House of Lords Committee is hopeful that its recommendations

“will help the Government bring the scheme back to its original aims”

The Committee’s Chair, Lord Hollick, sent a copy of the report to the Prime Minister and in his covering letter repeated the points raised in the report and also recommended that the government needs to raise awareness of the prospective changes via “a proactive, thorough public information campaign.”

House of Commons - Treasury Select Committee report

In January 2017 the Treasury Select Committee published its own report into Making Tax Digital and we reported on their findings which you can access by clicking here.

Other Tax Faculty material on MTD including a webinar on Wednesday 22 March

Tax Faculty has set up a dedicated part of its website to provide detailed information about Making Tax Digital.

On Wednesday 22 March Tax Faculty will hold a webinar with Anita Monteith, Sara Ghaffari and introductory remarks from Paul Aplin to bring listeners up to date with the latest developments in the Budget and in the Finance Bill published on Monday 20 March.

To sign up for the webinar click on Demystifying MTD.

  • The House of Lords seems to be the only sector of Government that actually understands some of the impact of these proposals.

    ICAEW have been very ineffective in getting the message across to HMRC; a great many valid points were made in the ICAEW response, which were largely ignored by HMRC yet I see little evidence of ICAEW  taking HMRC to task over that.

    Have the ICAEW considered making joint representations with other interested parties such as ACCA etc to HMRC to ensure that their valid concerns are not ignored?

  • I have been very disappointed with the lack of action by the professional bodies: maybe they see fees, rather than considering their clients. Frankly I believe it is crazy to press ahead in the way HMRC want to. There is no way they have properly evaluated the impact on costs. We still do not know what information they want and in what form,

  • Both the Lords Economics Affairs Committee and the Commons Treasury Select Committee have produced reports which express grave reservations  about the introduction of MTD. Both recommend far more time for reflection. For whatever reason HMRC just what to press on regardless. At this stage we must all continue to lobby MPs (and encourage others to do) to support the recommendations of the Lords and Commons as the Finance Act progresses.

  • This new system will cost the average 'brown paper bag incomplete records 'client money . They are ' brown paper jobs' for a reason. They represent a major group in this country of hairdresser, nail technicians, builders, carpenters etc. They are unsophisticated users of the tax systems who utilize the services of accountants to meet their compliance needs with hmrc. They will not be doing this quarterly book keeping themselves and will need to seek the services of their accountant with an increase to their charges. Small practices such as mine serve the needs of these small businesses at a reasonable fee and in common with a lot of small practices are already operating as capacity. Having talked to many accountant many see the solution to this increased work load and a 'cull' on clients and increasing fees on those retained. Making compliance more complicated and more expensive will inevitably encourage the black economy as people are discouraged from interacting with the tax system. Personally, i see that change has no purpose but if it is pressed through regardless of the comments from the profession then the absolute lowest entry level should be the vat threshold or higher. Some of these clients don't have computers, emails ,online banking , some can hardly read and write. This proposal is too onerous on the unsophisticated client.