Pressure to amend Making Tax Digital plans

Government departments and select committees have now entered a period of ‘purdah’ as the general election campaign gets underway, but there are signs that the two committees scrutinising HMRC proposals for Making Tax Digital are planning to work together to push for more changes and a slower implementation of the current plans

Andrew Tyrie, chair of the Treasury select committee, has released a letter sent to the chair of the House of Lords economic affairs committee’s financial bill sub-committee, which has published a report concluding that the roll-out of the scheme is being rushed, imposing unnecessary burdens on small businesses, and will yield little benefit to the government.

Tyrie says the economic committee’s report confirms that Making Tax Digital plans ‘require a good deal of improvement’ and claims ‘HMRC continues to underestimate the risk of rapid implementation of Making Tax Digital.’

‘The implementation of Making Tax Digital for small businesses certainly needs to be approached with considerable caution, and over a run of years,’ Tyrie writes. He cautions that otherwise there is a risk that small businesses may cease trading or move into the grey economy.

Separately, the Office for Budget Responsibility (OBR) has written to the Treasury committee providing more detail on the likely costs and potential impact of Making Tax Digital, which have been challenged by the Federation of Small Businesses (FSB) and others.

The letter points out that’ the scrutiny of policy costings is an iterative process’. OBR chair Robert Chote says Making Tax Digital was given a 'high' uncertainty ranking, based on the potential behavioural response and concerns over the delivery timetable.

In terms of behaviour, the uncertainty relates to the extent to which the software will prevent taxpayer errors. In terms of deliverability, the uncertainty relates to the challenging scale and scope of the project.

Chote said scrutiny of the proposals originally set out in Autumn Statement 2015 included paying close attention to the amount of contingency built into the delivery plan, and the OBR has reviewed the measure at each Budget and Autumn Statement since it was announced.

He notes: ‘The four-month delay in HMRC issuing a consultation last year, as a result of the EU referendum result, did absorb some of the contingency, but we have been reassured that delivery for the SA element remains on track for an April 2018 launch.’

Regarding the wider economic effect of Making Tax Digital, and in particular, the administrative burden on small businesses associated with quarterly reporting, the OBR points out it did not scrutinise the government's estimate, as it did not constitute part of the policy costing for the digital record-keeping element that is currently factored into its forecasts.

However, Chote does say that neither the government’s lower estimate nor the FSB figure of £2,770 per year per small and medium-sized business is comprehensive in terms of measuring the wider economic impact, and warns that as such, they do not provide a sound basis for considering the wider economic effects.

Tyrie’s letter to the House of Lords economic affairs finance bill committee is here.

The House of Lords economic affairs finance bill report is here.

The OBR letter to the Treasury committee is here.

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