The Government’s ‘Making Tax Digital’ project could have severe repercussions for larger businesses

A great deal of fuss has already been made about the government’s ‘Making Tax Digital’ project. Concerns were raised by both accountants and industry bodies about the costs and suitability of proposals to make small and medium-sized business submit quarterly tax returns. Although those fears were somewhat allayed by an HMRC statement refuting this; lobbying bodies were still concerned that the Treasury plans still required businesses, self-employed professionals and landlords to use compatible software and apps that connected directly and securely to their digital tax accounts. Those very same concerns have now been taken up by the Treasury Select Committee on behalf of larger businesses.

The Chairman of the UK’s Treasury Select Committee, Andrew Tyrie, has asked the Government to publish a comprehensive impact assessment after recent discussions with David Gauke, the Financial Secretary to the Treasury, after the Treasury failed to allay fears that the project would fail to generate significant savings to UK businesses.

In released correspondence with Mr Gauke on the Making Tax Digital project, Mr Tyrie said: “The extra burden placed on small businesses by ‘Making Tax Digital’ was already a source of considerable concern.”

“It now appears that large businesses could also be affected, if their software and systems are not compatible with HMRC requirements. This would make early implementation all the more unacceptable.”

Mr Tyrie sought assurances from Mr Gauke that businesses would not be compelled to pay their tax owed sooner than the current regime, and will not be required to provide comprehensive quarterly updates that will be a burden on resources.

In his response, Mr Gauke said told the Treasury Select Committee Chairman:

“Making Tax Digital will not mean businesses will have to do four tax returns a year instead of one.” Mr Gauke added that any quarterly updates required “will not involve all the complexity of a full tax return,” but will rather “be generated from the digital business records, with the data gathered electronically by the software and transmitted securely to HMRC.”

However, Mr Tyrie was not satisfied with the Treasury’s response and has since asked for further clarification about the precise nature of the prescribed digital software required. After a briefing with the Institute of Chartered Accountants in England and Wales (ICAEW), Mr Tyrie stated:

“[The requirement to submit continuous records in the prescribed digital format] would entail the use of designated software packages. It would have an impact on large businesses (who may not currently have accounting systems which are compatible with HMRC’s requirements) as much as on small businesses (who may not use computers).”

Tyrie also cited a recent ICAEW survey which said that three-quarters of all businesses and 82 per cent of sole traders would be obliged to change their record keeping systems to comply with ‘Making Tax Digital’ requirements:

“Full co-operation and consultation on it, with those most affected and also with Parliament, will be needed. An acceptable plan for its gradual introduction is also essential,” he added.

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