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.
The controversial plans were delayed by the snap election earlier this year, 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 NLA), the Government has today (13th July) announced a welcome U-turn on the extent of the Making Tax Digital requirements.
In general, the NLA is supportive of plans to simplify tax and bringing it into the 21st century. However, we had a number of concerns and reservations that we brought up in our response to the Making Tax Digital consultation last year:
- We believe that the £10,000 income threshold for unincorporated property businesses should be raised
- We have concerns with the workability of the software and IT systems and recommend a longer lead-in period before the scheme becomes mandatory for small businesses, the self-employed and landlords
- There needs to be a backup option for those landlords who genuinely cannot take part, and sufficient financial and educational support to help landlords meet the deadline.
The NLA welcomes the changes announced by the new Financial Secretary to the Treasury Mel Stride MP as they address the concerns we have been raising since its initial announcement. These changes are:
- Businesses will not be mandated to use the MTD system until April 2019 and then only to meet VAT obligations.
- This will apply to businesses with turnover above the VAT threshold (currently £85,000).
- Businesses with turnover below the VAT threshold will not be required to use the system but can choose to do so. Businesses will also be able opt in for other taxes, benefitting from a streamlined, digital experience.
- The Government will not widen the scope of MTD beyond the VAT threshold before the system has been shown to work well, and not before April 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping to become more widespread