Leading institutes back Lords call for MTD delay

A recommendation by a Lords committee that the government’s introduction of mandatory Making Tax Digital (MTD) for VAT should be delayed by at least one year is supported by the Low Incomes Tax Reform Group (LITRG), CIOT and the ICAEW

Victoria Todd, head of the LITRG team, said that HMRC had underestimated quite how significant a change the programme will be for many small businesses, pointing out that that who will be forced to move to digital recording keeping for the first time ‘may well find the prospect very daunting and intimidating’.

She said that these businesses ‘will need time to familiarise themselves with what is required, both in terms of the digital record keeping requirements and any system requirements’, even though some of these businesses were still unable to join HMRC’s pilot scheme in order to test whether their systems are compatible.

‘We are very concerned that HMRC have not yet published any detailed information as to how exemption from MTD for VAT may be obtained. Some small businesses may want to apply for exemption from the new regime, which they are allowed to do where it is not reasonable to expect them to use digital tools because of age, disability or remoteness of where they live or work.

‘However, HMRC have not yet told people how they should apply for an exemption, or what they can do if their application is turned down. 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.’

In its submission to the House of Lords economic affairs committee’s inquiry LITRG highlighted concerns about the challenging timetable, the availability of suitable free software, the small scale of the pilots and a lack of information for those requiring digital assistance and exemption.

Appearing before the committee in October 2018, Todd argued that MTD should not be mandatory, saying: ‘If a system is good and has benefits you would expect people to naturally want to use it, as is the case in the self-assessment system, filing online. We do not think it needs to be mandatory.’

The ICAEW has concurred with this opinion, saying that the pace of take-up should ‘be led by what is best for businesses themselves’. It recently conducted research which suggested that over 40% of businesses due to be affected by MTD were not yet aware of the impending change, and that 25% of affected businesses were still using a paper-based accounting system.

According to Anita Monteith, ICAEW tax manager, with only four months to go, ‘there is not enough time for businesses to act’.

‘We support HMRC’s ambition to increase the use of digital technology’, she said, ‘but we are concerned, as is the committee, that many VAT registered businesses are not going to be ready for implementation in April 2019. 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.’

CIOT and the Association of Taxation Technicians (ATT) have also expressed doubts about the rollout of MTD and backed calls for a delay to the scheme. Adrian Rudd, chair of the CIOT/ATT digitalisation and agent strategy working group, said that although digitalisation ‘could lead to efficiencies for taxpayers, agents and tax authorities’, it should be something that businesses implement because it delivers those benefits and should ‘not be something they are forced to adopt’.

'If properly implemented, digitisation could lead to efficiencies for taxpayers, agents and tax authorities. But many businesses will really struggle to get ready in time, and we support the committee’s recommendation of a delay for MTD for VAT.

'Pushing back the start date for Making Tax Digital for other taxes to 2022 at the earliest, is something we support, but it is more important that there is sufficient time set aside for a full review and evaluation of MTD for VAT before this programme is extended.'

Report by James Bunney

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