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Treasury committee hits out at conflicting cost estimates of Making Tax Digital policy

The government and Federation of Small Businesses (FSB) are being held by the Treasury committee to task over the projections made for the financial impact of Making Tax Digital to small businesses.
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In a letter written to MP Jane Ellison, who is financial secretary to the Treasury, and the FSB’s national chairman Mike Cheery, Treasury committee chairman Andrew Tyrie wants to know why each of the organisations have such conflicting views on how much Making Tax Digital will cost to implement.

While the government’s estimate is that the compliance costs average about £280 per business from 2017-18 to 2020-21, the FSB, a lobbying body for small companies around the UK, is of the belief that it is likely to be around £2,770 per year.

Making Tax Digital was first unveiled in 2015 by former chancellor George Osborne, and will see each individual and business file tax returns quarterly and online. The government’s plan is for an April 2018 roll-out, but calls have been made for a delay to aid the bedding in process.

One of the chief concerns has been the cost small businesses in particular will have to absorb when Making Tax Digital becomes law.

In explaining his letter to the Treasury and the FSB, Tyrie said: “The compliance cost estimates are so far apart that at least one of them must be wrong. I have written to both the Treasury and the FSB to ask for detailed supporting methodology for their estimates.

“If the FSB are right, the effects of Making Tax Digital would be crippling for many small businesses. If the government are right, businesses have something to gain in the longer term and one would expect them to be queuing up to join the pilot.”

Companies will be required to keep records in a digital format and submit quarterly updates to HMRC followed by an end of year reconciliation. However, a consultation on the new policy led to a number of large concessions at the end of January – one of the most substantial of which was that free software will be available to the “majority” of small businesses, while those that cannot go digital will not be required to.

The Treasury committee believes that mandating the digitising of record keeping and quarterly reporting, as currently envisaged, has not yet had its overall benefits proven. Furthermore, the time before implementation is “too short a lead time” for such a “fundamental change”.

Submissions provided to HMRC saw the Treasury committee conclude that, implemented badly, Making Tax Digital could “undermine the culture of mutual trust” between HMRC and the vast majority of taxpayers.

There is not enough information about the free software available to businesses, and the acceptability of spreadsheets, it also argued, with businesses likely to face a hike in accountancy fees.

Following a report from the Treasury committee at the end of January, Elison wrote to Tyrie and stipulated that the cost of Making Tax Digital to businesses would be £280 over the period 2017-18 to 2020-21.

However, this prediction is a thirtieth of the cost suggested by the FSB in October 2016 when a cost of £2,770 a year.

It is expected that further details on the Making Tax Digital policy will be disclosed during chancellor Philip Hammond’s Spring Budget on 8 March, but the Treasury committee is after earlier cost clarifications.

The two letters can be found below

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About Author

Hunter Ruthven

Hunter Ruthven is the editor of Real Business. He is also the editor of Business Advice, a title focused solely on a section of the business community currently underserved – micro companies. Alongside this, he is part of the team that hosts the Growing Business Awards, First Women Awards and Future 50 initiative.

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