The House of Lords Economic Affairs Committee has published its report “Making Tax Digital for VAT: Treating Small Businesses Fairly”. It does not make good reading for HMRC and it concludes that SME will suffer as a result of the rushed introduction of Making Tax Digital (MTD). The main conclusion is that the government should delay the introduction of MTD.
MTD for VAT will cost far more than was predicted in HMRC’s impact assessments. The Committee also criticised HMRC, saying it “inadequately considered the needs and concerns of smaller businesses”.
The report said HMRC neglected its duty to support small businesses through the implementation of the controversial measures, suggesting it “will make life even more difficult” for them.
In addition, the Committee said it “remained unconvinced” of the government’s logic used to justify the “speed and rigidity with which the programme is being introduced”.
Recommendations
A summary
- Defer the introduction of mandatory MTD by at least one year
- Plan a staged transition for businesses to join MTD and future stages which allows for businesses, not just HMRC, to be fully ready
- Wait until at least April 2022 to implement the next stages of MTD
- Publish its plan for the long-term development of MTD to encourage businesses to choose digitalisation for productivity, efficiency and modernisation reasons rather than just tax compliance.
The start date of MTD for most businesses is just three days after Brexit, so this also is very unhelpful for SMEs.