Treasury Committee chair Andrew Tyrie has urged chancellor Philip Hammond to consider delaying implementation of HMRC’s Making Tax Digital plans in order to get them right.

HMRC told to get digital tax plans right rather than stick to a ‘rigid timetable’ – Photo credit: Flickr, Images money

The plans set out HMRC’s ambition to have a fully digital tax system by 2020. Most businesses will be required to provide quarterly updates to HMRC from 2018 – small businesses won an exception in August, for instance – and keep their records up-to-date with free online tools and apps created by the tax authority.

However, in a letter published on the Treasury Committee’s website, Tyrie raised concerns about the timings of the consultation on the plans, which was launched last month, and said that the move should focus on ensuring the reforms work properly.

 “HMRC’s proposals are major changes,” he wrote. “There remains considerable cause for concern with the proposals. Better to get it right than to stick to a rigid timetable.”

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The Conservative MP acknowledged that MTD “may improve the customer experience for a growing number of people who are able to engage digitally”. For example, it could allow businesses to explore the consequences of tax decisions by providing ‘what if’ modelling through the online system.

“Implemented carefully, it could do some good.” Tyrie wrote. “But it could also do much harm. The consultation is therefore crucial. It needs to be meaningful. There may be a case for delaying the implementation of MTD.”

HMRC’s roadmap for the policy, published last year, says that implementation will be phased from April 2018 to 2020. It includes a consultation period, with the department publishing six separate consultations on the impact of different groups of businesses and tax payers. 

Tyrie said that despite “initial relief” from business about the publication of the “much-trailled consultation papers”, his committee had heard many concerns about details in the consultations.

For example, details about how much information will be needed in digital records is “tantamount to prescription by HMRC, for the first time, of a particular form in which accounting records must be maintained”, says Tyrie.

He also noted that, although businesses with a turnover of under £10,0000 will be exempted, those with a turnover just above this threshold will be hardest hit if they are obliged to change their working practice, for instance by hiring a bookkeeper to submit returns four times a year rather than once a year.

“More [concerns] may emerge over the coming weeks, as businesses digest the huge amount of detail in the consultation papers,” he said.

The chancellor has asked HMRC to provide legislation for the plans in next year’s Finance Bill . This means draft proposals for the legislation would be expected at the end of November this year. 

However, Tyrie warned that this would leave little time to consider responses to the consultations and make any necessary amendments after the consultation closes on 7 November.

After suggesting that a delay may be needed, Tyrie wrote that “a year’s extension for an unspecified group of businesses may not be enough”, and that it may be worth piloting systems and allowing time for customer experiences to be learnt “well before digital reporting is made mandatory”.