Not Making Tax Digital

Back in January, we urged readers to prepare for the implementation of Making Tax Digital (MTD), the Government’s attempt to digitise tax returns for all business owners and the self-employed. This was due to come into effect for large businesses from next April and for small businesses the year after but now the plans have been shelved.

Why the delay?

The plans had already attracted a great deal of criticism from business groups, taxpayers and MPs and formed part of the Finance Bill 2017, the longest Finance Bill on record. However, following the announcement of the snap election in June, it was felt that there was insufficient time for the measures within MTD to be properly scrutinised before being brought into law. In fact, the schedule for the Bill was shortened, with the Committee stage debate limited to four hours and all Treasury Select Committee evidence sessions cancelled.

Therefore, after the debate, it was agreed to remove 72 out of the 135 clauses and 18 out of 29 schedules. This has reduced the residual Bill to 140 pages, an 80 per cent reduction to the 762 pages that originally made it up.

Is this a cancellation of MTD or a postponement?

Speaking during the debate, Jane Ellison, financial secretary to the Treasury made it clear that while the Government is not proceeding with a number of clauses, there has been no policy change. As she highlighted, these provisions will make a significant contribution to the public finances, so the Government will legislate for the remaining provisions at the earliest opportunity, at the start of the new Parliament.

She added that all parties agree there must be a digital future for the tax system but that there must be sufficient time for the House to consider such measures properly, as called for by the Treasury Select Committee earlier this year.

The Committee was not the only body to be vocal in its calls for a postponement; representatives from various accounting organisations, including the Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England and Wales (ICAEW) agreed that Making Tax Digital plans should be put to one side and not included in the forthcoming Bill.

No need to rush

As one commentator remarked, it would be unwise to rush the MTD legislation process and the other measures that were considered controversial, such as interest restriction, loss relief carry forward, an end to permanent ‘non-dom’ status and the dividend allowance reduction. All of these need to be subject to the necessary scrutiny before being passed into law.

Meanwhile, a spokesman for the CIOT said that it was wise of the Government to keep only the measures essential to maintain its revenue-raising capacity, such as renewing the provision of income tax, which has not been cut from the Bill.

So what remains in the Finance Bill 2017?

The Bill still includes changes to overseas pensions and offshore transfers, as well as the sugar drinks industry levy, commonly referred to as the sugar tax, and disguised remuneration relating to employment income provided through third parties.

Going forward

Critics of MTD’s timetable said they hope that the delay in legislating for the measures will enable them to be put in statute, rather than brought in through regulations, which are subject to less scrutiny and cannot be amended.

It is likely that most, if not all, of the provisions dropped will return in a Bill after the election, regardless of which party wins. Therefore, we would still encourage firms to start making plans to digitise their record keeping.

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