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UK Urged To Push Back Making Tax Digital Agenda

Friday, November 30, 2018

In a new report released on November 22, 2018, the UK Parliament's Economic Affairs Committee called for a one-year delay to the implementation date of Making Tax Digital for VAT.

Under MTD, from April 1, 2019, businesses with a turnover above the VAT threshold (currently GBP85,000, or about USD109,200) will have to: keep their records digitally (for VAT purposes only), and provide their VAT return information to HM Revenue and Customs (HMRC) through MTD-compatible software. The UK's recent Budget confirmed that the VAT registration threshold will be unchanged in 2019.

HMRC is currently piloting the initiative. Digital record-keeping and quarterly reporting by small businesses and landlords for income tax purposes have been deferred until at least April 2020.

In October 2018, HM Revenue and Customs announced a six-month delay, until October 2019, for "sole traders and companies (except those which are part of a VAT group or VAT Division) provided they are up to date with their VAT."

In its report, introducing its recommendations, the Committee said: "Making Tax Digital for VAT will make life even more difficult for small businesses given their scarce resources to devote to preparing for the change. If HMRC insists on mandating Making Tax Digital for VAT, it has a duty to support small businesses with its implementation. So far, HMRC appears to have neglected this duty."

It has recommended that the Government defer the introduction of mandatory MTD for VAT by at least one year, while encouraging businesses to join voluntarily.

It recommended that the Government plan a staged transition for businesses to join MTD for VAT and future stages of MTD, to allow "businesses, not just HMRC, to be fully ready."

It added that the Government should wait until at least April 2022 to implement the next stages of MTD, to allow more time for the government to learn lessons from the implementation of the VAT-only part of MTD.

Finally, it said the Government should publish a plan concerning its long-term plans surrounding making tax digital, to encourage businesses to implement digitalization plans for productivity and efficiency reasons and not just purely to comply with MTD.

It concluded: "The Government and HMRC have failed to listen to our previous report, and the warnings of many others, in preparing for Making Tax Digital for VAT. They must address the concerns raised by this Committee, businesses, and accountants. In particular, they must start listening to small businesses. Otherwise, the burdens on small businesses may outweigh any potential benefits of the Making Tax Digital programme. By failing to properly engage with small businesses, HMRC risks alienating them from any future modernisation of the tax system."