Peers urge further delays for new business tax system
A new tax system for businesses should be delayed further than announced in the Budget due to concerns over "widely disbelieved" Government assessments of its costs and benefits, a parliamentary committee has said.
Almost all firms will be forced to carry out their accounting in a set electronic format and submit quarterly updates to the taxman under Government plans.
The new system, making tax digital (MTD), is set to be phased in from April next year on a timetable the House of Lords Economic Affairs Committee described as "rushed".
The committee highlighted the fact that firms are having to adapt to other tax changes including the controversial revaluation of business rates and said MTD would provide "little benefit to the Government".
Chancellor Philip Hammond announced in the Budget that quarterly reporting will be delayed by one year for businesses with turnover below the VAT registration threshold, costing the Treasury £280 million.
But the committee urged Mr Hammond to go further and delay the entire scheme until 2020 to allow a full pilot.
It said the Government's estimate of "tax gap" savings are "fragile and not based on adequate evidence", and its claim that the scheme will initially cost businesses £280 does not reflect the reality of the initial expense to companies.
Quarterly reporting should also be optional for firms with a turnover below the VAT threshold as the requirement is an " unnecessary burden" for small businesses, the peers said.
Ministers should also reconsider which companies are included in the scheme as those with seasonal or highly irregular income may be better off outside.
Committee chair Lord Hollick said: "Many small businesses and landlords are simply unaware of or not ready to cope with the additional administrative and financial burdens that will be imposed by digital taxation.
"We welcome the Government's announcement in the Spring Budget that the scheme would not apply to businesses with a turnover below the VAT threshold until April 2019.
"However, this does not go nearly far enough and it needs to further delay the scheme's implementation, and take a more incremental and gradual approach based upon the evidence from the pilot.
"This scheme coincides with changes to business rates and dividend taxation, all of which will impact some small businesses.
"A full pilot will ensure the software works and provide hard evidence of the additional financial and administrative burdens on businesses. It will also provide evidence in place of the widely disbelieved assessment of costs and benefits of the introduction of Making Tax Digital.
"We are sceptical of the benefits to small businesses of regular digital reporting. We recommend that the scheme remains optional for businesses with a turnover below the VAT threshold."
Mike Cherry, national chairman at the Federation of Small Businesses, also called for a reassessment of the impact of the scheme.
He said: "A delay to 2020 would give hard-pressed businesses time to get their systems ready, and a higher exemption threshold would take out those that are going to be struggling the most with this change.
"In addition we want to see a more comprehensive impact assessment as more details of the scheme become clear."
Lord Hollick wrote to both Mr Hammond and Prime Minister Theresa May to urge them to delay implementation until 2020.
The "rushed" timetable for the policy will "impose unnecessary burdens on small businesses and yield little benefit to the Government", he warned.
An HM Revenue and Customs spokesman said: " Businesses want to get their tax right, but HMRC's evidence shows that's not happening, and £8 billion of revenue is being lost every year because of errors in tax returns.
"Making Tax Digital will reduce the scope for businesses to make mistakes and the need for HMRC to intervene.
"We've consulted with businesses at every step and have listened carefully to concerns.
"The Chancellor announced at the Budget that millions of small businesses will now have an extra year to prepare for the move to digital.
"We will extensively pilot the digital programme, working with hundreds of thousands of businesses.
"We welcome the Lords Committee's support for the digitisation of the tax system."