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The House of Commons’s Treasury Committee has called on HM Revenue & Customs (HMRC) to delay the implementation of its digital tax project.
“This now leaves little over a year to complete the work. This looks over-ambitious,” the report said.
“The imposition of a requirement to move to digital record keeping and reporting is a fundamental change to the system of tax administration in the UK, which requires much wider debate and consultation.
The committee also 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.
Andrew Tyrie, chairman of the Treasury Committee, said that without “sufficient care” the digital tax project could be “a disaster”.
“Comprehensive pilots of the proposed system are essential, with full protection from anything that may go wrong for those required to participate,” he said.
“I understand that HMRC have already undertaken a number of pilots, although little public information is, so far, available about them. Apparently, the businesses participating do so by invitation of HMRC. Clearly, those who might be worst affected by Making Tax Digital are the most likely to decline the offer, greatly reducing the value of the information collected.”
Read more about making tax digital
- HMRC awards Accenture a contract that will run until 2020 to digitise the UK tax system.
- HM Revenue & Customs goes live with online personal tax accounts and publishes a detailed plan on how to “make tax digital”.
- HM Revenue and Customs launches six consultations on its plans to digitise the tax system and promises free software to small businesses.
As part of its plans, HMRC is collaborating with software developers to offer free software to small businesses that are not using digital systems and may not be able to afford a system. This would happen through different models: one where a supplier can offer a free payroll product, but charge for costs of printing and customer support, and another where simple applications will be free to use, but linking up with more complex ones, such as tax agents, will cost money.
The committee said in its report that although it welcomed the offer of free software, it was still concerned and that there isn’t enough information about the free software yet.
“In order to honour this commitment, the government needs first to define what it means by free software and to whom this will be available,” said the report.
“Second, it should ensure there is a functioning market to produce free software without disruptive marketing material in it. Third, it should ensure that access would remain free.”
The committee is also concerned about costs to businesses – even if the software remains free – and said it is “extremely unlikely” that businesses will be capable of adapting their organsiations to the April 2018 start date “at reasonable cost”.
“There will be both implementation costs and continuing costs. Evidence given to the committee suggests that under the current timetable, the total cost to business (including software, hardware, training, agent fees and, above all, time) might exceed the total benefits in improved tax yield. In other words, even if the yield were to rise, the return to the whole economy could be negative,” said the report.