Select committee finds that department is ‘not listening to small businesses’

A parliamentary select committee has implored HM Revenue and Customs to delay the implementation of Making Tax Digital for VAT by one year, after concluding that the department has “neglected its responsibility to support small businesses”.

A report from the Lords Economic Affairs Finance Bill Sub-Committee finds that many of the 1.2 million UK businesses for which Making Tax Digital for VAT is being introduced in April 2019 will not be ready in time. The committee said that “HMRC has inadequately considered the needs and concerns of smaller businesses” in managing the rollout of the programme.

While some public sector organisations have been given a six-month deferral to introduce the digital tax scheme, small businesses – who, the committee said, “have the fewest resources to manage the transition” – have received no such clemency.

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“The committee therefore recommends waiting at least one year until Making Tax Digital for VAT is made mandatory, and transitioning in stages to allow businesses to join when they are ready,” it added. 

Lords accused HMRC of failing to listen to SMEs and to the “warnings of many” – including a March 2017 report from the committee – that raised concerns about the programme. The department, the committee found, is “alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019”.

“The committee urges the government and HMRC to start listening, particularly to small businesses,” it said. “The committee recommends that the next stage of Making Tax Digital is not implemented until 2022 at the earliest, to allow time to learn and act on lessons from Making Tax Digital for VAT.”

The costs to businesses of introducing Making Tax Digital for VAT will be far higher than HMRC’s previous assessments, Lords found, and no free-to-use compliant software is currently available. The department is encouraged to provide “a basic free software option” that complies with the scheme.

The committee also described the government’s claim that the programme will increase tax returns as “unconvincing”.

In response to the report, an HMRC spokesperson said: “We are disappointed that the committee’s report doesn’t reflect HMRC’s wide and significant engagement on Making Tax Digital (MTD) over the last three years, nor the changes made as a result for small businesses. In response to previous feedback from businesses, representative groups and parliament, we made changes to the scope and timetable for MTD in July 2017 to ensure businesses, particularly the smallest, have more time to prepare. HMRC has already written to 200,000 businesses and will be writing to every other mandated business in the coming weeks to ensure they know about the changes and how to prepare.”

The department will respond directly to the committee in due course.