The Low Incomes Tax Reform Group (LITRG) has welcomed the recommendations of a critical House of Lords Economic Affairs Committee report titled Making Tax Digital for VAT: Treating Small Businesses Fairly, published today. LITRG says too many taxpayers are still in the dark about this compulsory switch to digital record keeping and reporting of VAT due to begin in April 2019.
The Committee is recommending that the Government’s introduction of mandatory Making Tax Digital for VAT (MTD for VAT) should be delayed by at least one year from its current 1 April 2019 start date. They say that the Government must wait until at least April 2022 before Making Tax Digital is extended to other taxes in order for lessons to be learnt from the implementation of MTD for VAT.
In our submission to the Committee’s inquiry we highlighted concerns about the challenging timetable, the availability of suitable free software, the small scale of the pilots and lack of information for those requiring digital assistance and exemption.
Head of Team at LITRG Victoria Todd said:
“We support the peers’ very sensible recommendations and hope they are heeded by HMRC.
“The chances of the introduction of MTD for VAT in April 2019 being a success are reducing all the time. HMRC have only just started writing to businesses who will be affected to let them know that this new regime is being introduced. This leaves insufficient time to enable a business to research and consider options with regard to software and establish new procedures or modify existing procedures for its record keeping or apply for an exemption if it considers it is eligible for this.
“We are very concerned that HMRC have not yet published any detailed information as to how exemption from MTD for VAT may be obtained. Some small businesses may want to apply for exemption from the new regime, which they are allowed to do where it isn’t reasonable to expect them to use digital tools because of age, disability or remoteness of where they live or work. However, HMRC have not yet told people how they should apply for an exemption, or what they can do if their application is turned down. As it is likely to take some time to get a decision under any process introduced, if someone is denied an exemption when they were expecting to get it, they will now have very little time to get themselves ready to go digital by April 2019 – this is completely unacceptable.
“HMRC are underestimating what a major change the new regime will be for lots of small businesses. They need to be aware that many will need to move to digital record keeping for the first time and so they may well find the prospect very daunting and intimidating. They will need time to familiarise themselves with what is required, both in terms of the digital record keeping requirements and any system requirements. Some are still not yet able to join HMRC’s pilot scheme to test whether their new systems work properly before mandation applies in April 2019.
"We are pleased this report recommends the Government reconsider the case for providing free basic software, something which LITRG has been suggesting for some time. We continue to urge HMRC to provide some basic free software that small businesses could use to help them comply with their obligations and hopefully make the process easier.”
Notes for editors
1. The House of Lords Economic Affairs Committee’s Making Tax Digital for VAT: Treating Small Businesses Fairly report can be found here. Commenting on the report, Lord Forsyth of Drumlean, Chairman of the House of Lords Economic Affairs Committee, said: “HMRC has neglected its responsibility to support small businesses with Making Tax Digital for VAT. HMRC are not listening to small businesses, while offering a six-month deferral to many in the public sector. Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier. The Government must delay its introduction.
“The Government has failed to listen to the warnings in our previous report. It must slow down its Making Tax Digital programme and listen carefully to the concerns raised by this Committee, small businesses and accountants.” LITRG's submission to the Committee can be found here.
2. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.More Articles by Chartered Institute of Taxation (CIOT) ...