1Introduction
1.Making Tax Digital (MTD) is shorthand for a proposed new system whereby businesses are required to keep their records in a digital format and submit quarterly updates to HMRC followed by an end of year reconciliation. For many taxpayers, this would take the place of their annual tax return. HMRC has confirmed that the quarterly updates will be “summary totals of the digital record of income and expenditure and not transaction records1”. It is proposed that businesses will be required to start this form of record keeping and reporting for income tax and National Insurance from 1 April 2018 or 1 April 2019, depending on their size, and for VAT from 1 April 2019.
2. It was included in the Terms of Reference for the Treasury Committee’s inquiry into UK Tax Policy and the Tax Base2. Since then, the Committee has received a great deal of evidence, both oral and written, and its members have heard of a wide variety of concerns about the Government’s proposals. Perhaps acknowledging the strength, or at least the volume, of the concerns that had been raised in the responses to its consultation papers, the Government has announced that its response to the consultation will not be until January3. After receiving representations from the Committee and other parties, the Government has put back its response to the consultation from the Autumn Statement, when it would ordinarily have been expected, to January 2017. This is welcome. The Government has said clearly that it is listening to the concerns being raised. For example, the Financial Secretary said:
“Several significant concessions regarding the number of small businesses that were exempt from the system were announced over the summer, but I am listening carefully to the points being made both by colleagues in the House and by some of the important stakeholders with whom we have been engaging. That is why we said that we will respond in the new year. We do not want to rush our response; we want to consider all the points carefully.”4
3. The Committee is therefore taking the unusual step of publishing a report on a small part of a bigger inquiry, and without having had the opportunity to hear evidence from the Government. The Committee expects the Government to consider this report before it publishes its response to the Making Tax Digital consultations and the provisions to implement the changes, expected in January 2017. The report makes a number of suggestions to mitigate the widespread concerns over MTD. If these suggestions are unacceptable to the Government, it is likely that pressure will increase for the Government to introduce MTD as a voluntary scheme.
4.There were six consultations about different issues, each of which could be implemented independently, but all form part of the single ambition to achieve a digital tax system. This report focuses on just one - “Bringing Business Tax into the Digital Age”. The others are either simplification measures which it is suggested could assist this, or are around new payment and administrative methods, powers and penalties. The Committee has not delved into these supplementary issues at this stage.
1 HMRC, Making Tax Digital: consultation, “Bringing Business Tax into the Digital Age”, 15 August 2016, Page 6
2 The terms of reference for this Inquiry are on the Committee’s website, www.parliament.uk/treascom
3 Autumn Statement 2016, Cm 9362 paragraph 4.42
4 Official Report, 29 November 2016, Volume 617, Column 1383
11 January 2017