Fears of chaos over digital tax reforms
Industry leaders and MPS call on Hammond to delay scheme that is ‘pushing businesses to the brink’
The Government is coming under pressure to delay controversial digital tax reforms, amid warnings of chaos if they go ahead next month as planned. Fears are mounting that the move, which will affect 1.2million businesses, will lead to more tax errors as 97 per cent of businesses have still not signed up. Vat-registered businesses with income above £85,000 are being told that they must start using new software that lets them record their tax bills in real-time.
PHILIP HAMMOND is coming under pressure to delay controversial digital tax reforms amid warnings of chaos if he pushes ahead with scheme next month as planned.
Fears are mounting that the move, which will affect 1.2million business, will lead to more tax errors as 97 per cent of businesses have not signed up and tens of thousands are unaware that the change is coming.
Under the so-called “Making Tax Digital” reform, Vat-registered businesses with income above £85,000 are required by the taxman to start using new software that lets them record their tax bills in real time.
To comply with HMRC’S new system, businesses must buy this software from a list of companies that HMRC has checked work with its own systems and start using it to log their bills. But take-up has been slower than expected, with some businesses are complaining that the upgrade is proving to be so complicated and expensive that it is pushing them to the brink of collapse.
Accountants said they would have expected 400,000, or around a third of these businesses to have signed up by now, but alarmingly HMRC has revealed that as of last week the true figure was just 30,000, or 2.5 per cent.
Last night, the Chancellor faced calls from politicians and industry groups to postpone Making Tax Digital, warning its rushed implementation would defeat its entire purpose by resulting in more erroneous returns being filed.
Lord Forsyth of Drumlean, who is chairman of the economic affairs committee, said: “We have warned before that there has been no proper preparation for the change. Not only have businesses not been given sufficient time, but this is being done at the very moment when we’re leaving the EU and there’s enough uncertainty as it is.
“We are not persuaded that there has been sufficient support and help for businesses migrating to new software, and given this, we didn’t buy the argument that it would result in fewer errors. Estimates of how much this will cost of businesses were derisory and not properly done. It is being rushed and will result in extra stress on businesses.”
Suren Thiru, head of economics at the British Chambers of Commerce, said although the idea to modernise the tax system was a good one, the timing “couldn’t be much worse”. He said: “In the current environment, this is an added cost and administrative burden, and there still isn’t adequate understanding or preparation among businesses to make its roll-out a success.”
HMRC is also accused of causing confusion by sending out mixed messages over whether it is going ahead with Making Tax Digital. In November, its chief executive suggested to the Public Accounts Committee that it did not have capacity to deal with the tax changes and a no-deal Brexit, raising questions over whether businesses could be off the hook in this event.
But yesterday a Treasury spokesman said: “Making Tax Digital will transform how businesses keep their records and send information to HMRC, avoiding costly errors and seizing the opportunities of digital technology.”
In 23 days’ time, the UK is due to leave the European Union. Judging by the logjam in talks over possible changes to the Withdrawal Agreement aimed at securing its support in Parliament, if we do leave on that date it will be without a deal. Geoffrey Cox QC, the Attorney General, has so far failed to secure the EU’S agreement to reopen the legal text of the draft treaty to accommodate objections to the current Irish backstop proposal. Without such undertakings, the chances of Theresa May’s deal getting through the Commons at its second attempt next Tuesday must be vanishingly small. The likelihood must be that MPS will then vote to halt departure on March 29, pending an extension of the Article 50 process. But this is not certain: the default position remains that we leave on March 29, since this date is currently written into law.
In such an eventuality, a new tariff regime will be required, with huge implications for British business and farming. MPS are entitled to know what these schedules will be before the vote on the Withdrawal Agreement on Tuesday, yet they are being kept under wraps. Ministers say the details will not be released unless the vote on the Withdrawal Agreement has been lost.
This is not good enough. Leaks of the plans suggest tariff cuts of up to 90 per cent will follow a no-deal departure, but the Government refuses to confirm this. Clearly for some industries, like farming, such reductions in import prices would be difficult, even if consumers would benefit from lower prices.
Nor is this just about the EU. If the UK does not impose reciprocal tariffs on imports from the EU after a no-deal Brexit then they would also have to be removed on goods from most other countries, under World Trade Organisation rules.
There is much to commend this approach, since it will demonstrate that the UK will be an open and liberal economy after Brexit. But the Government should be clear about its plans. Ahead of next week’s meaningful vote, MPS should have all the relevant information before them; but the Government seems to be holding back the announcement until Philip Hammond, the Chancellor, makes his spring statement next Wednesday, just hours before MPS vote on the no-deal option, should Mrs May have lost the previous day. MPS and businesses need to know sooner than that.