Lords call for delay in MTD for VAT until 2020

MTD to be delayed?

The House of Lords economic affairs committee has issued a scathing report on HMRC’s upcoming Making Tax Digital (MTD) for VAT scheme. MTD is due to come into effect 1st April 2019, but the Lords have taken issue with the ‘unrealistic time frame and lack of communication with businesses’, as well as HMRC’s purported ‘failure to improve following previous criticism.’

The Lords have maintained that HMRC have not addressed issues that were raised back in 2017, when the committee initially reviewed the scheme.

Criticisms of MTD

Last year, the House of Lords claimed that HMRC underestimated the difficulties that will be faced by the ‘considerable number of people with limited digital skills or inadequate broadband access.’ The committee also discussed how the timetable for MTD ‘was too tight and entailed unjustifiable risks for businesses, HMRC, tax practitioners and the software industry.’ Since then, the Lords have claimed that HMRC have taken ‘no meaningful action’ to address any of their issues with MTD.

The committee have said that the ‘speed and rigidity’ of the introduction of MTD is motivated by the prospect of increased revenue for the government, rather than out of a concern for greater efficiency for taxpayers. They remain unconvinced that MTD will ‘reduce error and thereby the tax gap.’ Ultimately, the committee have found that ‘costs for taxpayers were understated and benefits [of MTD] overstated.’

Lack of communication

A common theme in the Lords’ report is a concern about the lack of communication with businesses and taxpayers regarding MTD. HMRC have been accused of choosing to communicate with software providers, agent representative bodies and agents themselves rather than those who will be most affected: the taxpayers.

HMRC informed the committee that on 16th October 2018 it was ‘significantly increasing its communications activity.’ However, the Lords have argued that five months until the introduction is ‘too late to begin an effective communications campaign.’

This lack of information has been described as leading to a ‘spectrum of business readiness’. This spectrum ranges from businesses that are confident in their preparedness for MTD and those that are still ‘wholly unaware.’

Extra costs?

The Lords have noted that, in contrast to MTD’s expected aim, the program may wind up costing businesses and taxpayers more. For instance, businesses that use older software ‘face costs of upgrading purely to meet MTD requirements.’

In a damning verdict, the committee found that HMRC ‘is alone in its confidence that all one million businesses will be ready for MTD for VAT in April 2019. They have underestimated the time for research, planning, training and system changes that some businesses will need.’

Conclusion

To close their report, the Lords strongly recommend that the government ‘defers the introduction of mandatory Making Tax Digital for VAT by at least one year, while encouraging businesses to join voluntarily.’ The committee also suggests a staged transition as opposed to the strict deadline in place at the moment. This should allow businesses to be fully ready. April 2022 has been suggested as the earliest possible time for further planned stages of MTD to be implemented.

Arguing in support of MTD, a HMRC spokesperson has said that they are ‘disappointed that the committee’s report does not reflect HMRC’s wide and significant engagement on MTD over the last three years, nor the changes made as a result for small businesses.’

Ultimately, whether MTD is delayed or if it comes into effect as planned next April, we will be there to support our clients with the transition. Furthermore, even if MTD is pushed back, it is coming eventually, and it is always sensible to adequately prepare regardless.

Please visit our new domain http://mtd.digital for an in-depth look at what to expect when MTD arrives – whether that is in five months time or slightly later…

We’re happy to advise on the above, please feel free to call us on 0161 832 4451 or drop us a line mail@jackross.co.uk.