Opposition to the rollout pace for Making Tax Digital, from MPs, business and the influential Treasury Committee, has resulted in the government amending the timetable.
Under the reformed timetable, only businesses with a turnover above the VAT threshold (£85,000) will have to keep digital records, and only for VAT purposes, starting from 2019. Businesses and landlords will not be asked to make the switch to MTD and update HMRC quarterly for other taxes until at least 2020.
While still wholly supporting the MTD initiative as a necessary move to modernise and streamline the tax system, the Treasury accepted the need to slacken the timetable to ensure businesses can transition comfortably. This means that 3m of the smallest businesses and landlords will have the option to voluntarily make the switch to digital record keeping at their own pace before it becomes mandatory.
The new minister in charge of Making Tax Digital, Mel Stride, financial secretary to the Treasury said:
‘Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms. We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.’
Software companies have also welcomed the delay but warn that the government must not be complacent; the general lack of communications about the rollout of Making Tax Digital raised concerns with recent surveys of software clients showing low levels of awareness of the plans for Making Tax Digital.
The deferral will give more time for testing the system. HMRC will continue with their Making Tax Digital pilot and will start to pilot MTD for VAT by the end of this year, initially on a small, private scale, and then widening the scope into a public pilot starting Spring 2018.
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.
This will leave HMRC with a hole to fill as it had expected Making Tax Digital to generate an additional £500m in tax revenues a year.
Ministers also confirmed that the Finance Bill will be introduced as soon as possible after the summer recess. This will legislate for all policies that were included in the pre-election Finance Bill, raising over £16bn across the next five years to fund our vital public services. The wash-up Finance Act before the snap general election in June was a slimmed down version of the planned legislation, stripping out all but the most critical changes to tax rates and reliefs, and removing any complex tax changes due to the lack of time for effective scrutiny in parliament and through select committees.