Fears mount over HMRC's Making Tax Digital project

Concerns have been raised about the effect HM Revenue and Customs’ (HMRC) Making Tax Digital project could have on larger businesses.

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

Mr Tyrie released his correspondence on the Making Tax Digital project with David Gauke. He 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.”

HMRC aims that by 2020, most businesses, self-employed individuals and property landlords will be required to “keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account”.

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, Gauke said to Tyrie: “Making Tax Digital will not mean businesses will have to do four tax returns a year instead of one.”

Gauke added that quarterly updates “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.”

Tyrie wrote a further letter to Gauke in April, responding to a brief by the Institute of Chartered Accountants in England and Wales (ICAEW) stating that “verbally we are told that using Excel is not digital record keeping: it will have to be accounting software”.

He added that this would mean businesses “would be required not just to submit information to HMRC online once a quarter, but that they would also be required to do all their record keeping in a prescribed digital format.

“This 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 required to change their record keeping systems to comply with ‘Making Tax Digital’.

“Full cooperation and consultation on it [Making Tax Digital] – with those most affected, and also with Parliament – will be needed,” added Tyrie.

“An acceptable plan for its gradual introduction is also essential.”

Date published 5 May 2016 | Last updated 5 May 2016