HMRC’s £10,000 threshold for use of Making Tax Digital has been excoriated by members of the House of Lords economic affairs committee, who branded the proposal ‘ridiculous’
HMRC proposed the threshold, below which traders and enterprises would be exempt from reporting tax liabilities to HMRC through digital means, in its August 2016 consultation Bringing business tax into the digital age – one of six released at the time.
The £10,000 threshold was viewed as a random figure by many across business and the accountancy profession, as it did not correspond with the personal allowance of £11,000 for 2016-17, which is set to rise to £11,500 in 2017-18. Moreover, it falls well below the £83,000 VAT threshold, which many stakeholders have suggested it should be linked with.
In the committee hearing, Lord Bilimoria, founder and chairman of Cobra Beer, described the threshold as ‘a ridiculous figure,’ and added his voice to those calling for it to match the VAT threshold.
HMRC has a ‘complete lack of any commercial reality,’ he said. ‘This, to me, shows they have not consulted properly on this at all. They are not listening to business, they do not understand business. They think it’s going to make things easier by asking them to do things five times a year instead of four times a year. This is not living in the real world.’
In its responses to the consultations, released last week, HMRC confirmed in would beta test Making Tax Digital from April 2017, ultimately peaking at 400,000 participants before the project’s rollout in April 2018.
It intends to do so by commencing with sole traders, landlords and small businesses before scaling upward, something witness Richard Murphy, director of Tax Research UK, suggested is ‘the wrong way around’, and the rollout should begin with the largest businesses involved.
As yet, though, it is unclear what the upper limit of business size taking part in Making Tax Digital will be. At present, charities (but not their trading subsidiaries) will not need to keep digital records. For partnerships with a turnover above £10m, Making Tax Digital is deferred until 2020.
‘I put my cards on the table, I’m not a fan [of Making Tax Digital],’ Murphy told the committee. ‘Nobody in a smaller business can imagine how this can be user-friendly. This will increase the error rate. People who have to create accounts in a short space of time make a lot more errors than those who don’t. The longer you take to prepare a set of accounts, the more likely it is you will eliminate estimates which underpin most sets of accounts.
‘I would suggest we start with companies and end up with the smallest businesses, rather than the other way. We’ve got the wrong direction of travel on implementation,’ he said.
Calum Fuller is assistant editor of Accountancy