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HM Revenue and Customs (HMRC) has delayed the launch of its Making Tax Digital for Business programme until 2020.
Originally, HMRC planned to mandate the use of of digital tax records for businesses by April 2018, but concerns were raised that the deadline did not provide enough time for “such a fundamental change”.
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Following hordes of criticism, including from the Lords’ Economic Affairs Committee and the House of Commons Treasury Committee, HMRC has now decided to follow advice and “ensure businesses have plenty of time to adapt to the changes.
As part of the changes, only businesses with a turnover above the VAT threshold will “have to keep digital records, and only for VAT purposes” from 2019, and businesses will not be asked to keep digital records for other taxes until “at least 2020”. For small businesses, digital tax returns will be voluntary, the government said.
Mel Stride, financial secretary to the Treasury and paymaster general, said there was a general agreement that digitising the tax system was the right thing to do, but that “many have been worried about the scope and pace of reforms”.
“We have listened very carefully to their concerns and are making changes so we can bring the tax system into the digital age in a way that is right for all businesses,” said Stride.
In January 2017, the Treasury Committee called for a need to pilot the new digital tax system and processes before beginning full implementation. It said there should be a “comprehensive set of pilots of the end-to-end system” before it becomes mandatory for all businesses.
Read more about Making Tax Digital
- The National Audit Office called on HM Revenue & Customs to increase transparency and assess how moving to a digital tax system will impact businesses and individuals.
- HM Revenue & Customs published an IT strategy outlining how it plans to transform its IT estate by taking a platform approach, moving to virtual infrastructure and cloud-based services.
- MPs urged HMRC to push back the go-live date of its Making Tax Digital project amid concerns over costs, software and readiness.
Earlier this year, HMRC began a pilot of the scheme, and said it will continue to roll that out further to ensure the system has been tested “extensively with businesses”.
The government plans to launch a pilot for digital tax for VAT later this year, beginning with “small-scale, private testing” before deploying a live pilot in spring 2018.
It will also allow firms to keep using spreadsheets to record their finances before linking to software that will upload their accounts to HMRC. It will also provide free software to the smallest firms that cannot afford to buy off-the-shelf applications.
The cost of moving to Making Tax Digital
According to HMRC, the transition from the current system to the Making Tax Digital programme is expected to cost UK businesses £1bn – which works out on average as £280 per company.
In contrast, the Federation of Small Businesses (FSB) has said the true cost would be significantly higher – as much as £2,770 per business per year.
When the Finance Bill was rushed through ahead of the general election, Making Tax Digital had been dropped from the bill as the government had to make several amendments resulting in a much-reduced bill in order to get it passed in time.
The government said the Finance Bill will be introduced “as soon as possible after the summer recess” and that those policies taken out, will be put back in.