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Making Tax Digital plans suspended

Tim Woodgates

Following the calling of a snap general election, numerous elements of the Budget proposals have been dropped from the Finance Bill.  One of the most notable removals concerns Making Tax Digital (MTD).
The current position is that (subject to any future Budget announcements), MTD will now not be coming into effect in April 2018.
The government are now seemingly coming to acknowledge the huge impact MTD would have.  By removing it from the Finance Bill, they at least allow an opportunity for much more detailed reflection and scrutiny on the proposal if the plans are reintroduced following the outcome of the election on 8 June 2017.
This move will be universally welcomed by the 1.6 million businesses, 2.4 million self-employed tax payers and 900,000 residential landlords that would have been impacted by the changes the MTD regime imposed.  It is down to the persistent criticism and warnings from the accounting and tax professions and other business groups that the concerns are at least now being heard in Downing Street.
The House of Lords Economic Affairs Committee has also written a very damning letter to the Government following evidence provided by numerous accountancy and business groups which has re-emphasised the concerns previously raised.  Moore were quoted within the evidence given to the Committee and, from taking all the evidence given into account, the Committee concluded on the following points:
Delay MTD regime until post 2020
Neither HMRC nor the software providers are expected to fully ready for MTD by the planned launch date of April 2018.  There would have been no time to review the pilot scheme currently running before the original go live date next year.  The suggestion was to therefore delay the implementation of MTD until 2020 onwards.
HMRC to improve cost/benefit analysis
HMRC argue that £8 billion a year is lost from avoidable taxpayer errors.  The position that digital record keeping will correct this problem is not shared by many.  Reporting in a different format provides no obvious improvements as far as removing errors are concerned.  HMRC’s initial estimate of £280 as the likely cost to businesses to implement MTD is also widely discredited and is likely an understatement of the costs faced by businesses.
MTD alignment with the VAT threshold
The Committee shared the view of many that the MTD regime should only be applied to those businesses with turnover in excess of the VAT threshold (currently £85,000) which would provide a sensible exemption for smaller businesses that are not equipped to deal with the demands being made by HMRC.
Raise tax payer awareness
Heavy criticism was raised over the public awareness of the MTD regime and they suggested that HMRC do far more to inform the public about the changes and the steps needed to be taken to be compliant.
The delays in the implementation of MTD provide HMRC with an opportunity to revisit both their assumptions and the intended application of the MTD regime.  It is hoped that they will propose a more balanced and sensible approach in the future.
It is imperative to note however that MTD has not been scrapped altogether.  It is possible, maybe even very likely, that the regime will eventually come into effect and tax payers need to be prepared when this time comes.