The House of Lords Economic Affairs Committee has set up a Finance Bill Sub-Committee (the FBSC) to inquire into the draft Finance Bill 2017, most of which was published on 5 December 2016.
The FBSC’s inquiries focus on issues of tax administration, clarification and simplification rather than on rates or incidence of tax.
This year the FBSC intends to inquire into the provisions required to establish the new mandatory digital tax account regime (‘Making Tax Digital’) which is due to replace the current system of annual tax returns starting in April 2018. Her Majesty’s Revenue and Customs (HMRC) indicate that the relevant draft Finance Bill 2017 clauses will be published in January 2017, following HMRC’s consideration of the responses to its 2016 consultation on the proposed changes.
The Government plans to ‘make tax digital’ by 2020 by replacing tax returns with digital tax accounts for individuals and requiring digital reporting by businesses and private landlords. In 2016 the Sub-Committee considered the first step on this road: the introduction of Simple Assessments of tax liability calculated by HMRC to replace the self-assessment system for a limited number of individuals.
The 2017 Finance Bill is expected to contain the provisions that affect businesses and private landlords. Based on HMRC’s consultations in 2016, the draft clauses may include:
(a)the obligations of taxpayers covered by the new scheme, including any proposal to mandate the use of computer software or ‘apps’ to keep their business records and to provide quarterly returns of this data to HMRC;
(b)the timing of the introduction of these provisions, starting from April 2018;
(c)the possible ‘points-based’ penalty regime which will apply to failures to comply with the new obligations;
(d)the scope of any exemptions for the smallest businesses and landlords and for the ‘digitally excluded’;
(e)any proposed simplifications to the rules governing tax accounts drawn up by small businesses and partnerships and property businesses; and
(f)an in-year voluntary pay-tax-as-you-go scheme based on digital records and updates.
Subject to publication of the relevant clauses, the inquiry will consider the extent to which the measures proposed in the draft legislation will contribute to the modernisation, simplification and efficiency of the tax system, as well as their impact on the compliance and other costs borne by taxpayers, particularly smaller businesses and private landlords.
The focus of the inquiry may alter should the scope of the draft provisions differ substantially from the proposals consulted on. Subject to this, the FBSC invites evidence on the following topics:
1.the evidence underlying the case for the Making Tax Digital proposals and their suggested impact. The FBSC would be interested in statistical and other evidence, including that drawn from the experience of other tax jurisdictions, relevant to an assessment of the potential impacts of these proposals on businesses, landlords and other taxpayers;
2.the evidence base for mandatory digital reporting. In particular the potential impact on the ‘tax gap’ and for HMRC resources;
3.the scope of the exemptions and measures to help the digitally excluded;
4.the robustness of the proposed timetable from the perspective of each of the groups affected, including the software industry, different taxpayer groups (such as small businesses and landlords), intermediaries and HMRC;
5.the adequacy of the proposed measures to simplify the calculation of taxable profits and basis periods and the timing of their introduction; and
6.the consequential revisions to the penalty regime.
The written submissions will guide the FBSC’s deliberations in oral evidence sessions and also inform the Sub-Committee’s final conclusions and recommendations.
Written evidence on the background and general issues (questions 1 and 2) should reach the Committee by 27 January 2017.
Written evidence on the draft clauses (questions 3–6) should reach the Committee by 15 February 2017.
Public hearings will be held in February 2017. The report will be published by the end of March 2017.
17 January 2017