Government U-Turn on MTD?
Making Tax Digital was announced by then-Chancellor George Osborne in the 2015 Autumn Statement. Its aim was to digitise the tax system with the self-employed, small businesses and unincorporated landlords needing to keep digital records and use software to update HMRC quarterly.
Whilst a number of business organisations were supportive of plans to simplify tax and bring it into the 21st century many expressed reservations about certain aspects of the proposals. These included the thresholds for unincorporated businesses; the workability of the software and IT systems; and the availability of financial and educational support. However, MTD proposals were delayed by the election – as the Government had to drop them from the Finance Bill in order for it to be passed before Parliament was dissolved.
With the plans having faced criticism from MPs, the Treasury Select Committee, business and professional bodies (including the National Landlords Association and the FSB), the Government announced a U-turn on the 13th July on the extent of the Making Tax Digital requirements, which has generally been welcomed.
Commenting on the Government’s decision, Richard Lambert, Chief Executive Officer at the National Landlords Association (NLA), said: “We are pleased that the Government has finally listened to the concerns raised by the NLA on behalf of landlords who would have been dragged into a system of tax reporting rushed into being before they or it are ready.
“While we have always supported simplifying the tax system, we were concerned by the issues raised by the Making Tax Digital programme, and welcome the changes announced by the new Financial Secretary to the Treasury Mel Stride MP, as they address exactly the points we’ve highlighted since the initial announcement.
“However, rather than being evidence that the Government is willing to work with the industry, this has come about because they no longer have the majority to push through such controversial plans”.
The Treasury announced that the current threshold for Mandatory Quarterly Tax reporting would be increased to the VAT threshold of £85,000, meaning the exemption of the smallest firms. Responding, Mike Cherry, Chairman of the Federation of Small Businesses, described the changes as a “real lifeline for small firms already facing a hugely challenging economic climate”.
The government’s decision to make adoption of Making Tax Digital (MTD) voluntary for the UK’s smallest businesses means that there will be a lot of accountants and small business owners out there breathing a huge sigh of relief. Tax consultant Andrew Hubbard said, “It became increasingly obvious that the proposed timetable was unrealistic. In the end, HMRC had little choice to postpone given the level of pressure they were under from the Treasury Select Committee and the accountancy bodies, not to mention the genuine alarm being expressed by affected businesses.”