3 December 2018

The House of Lords’ Economic Affairs Committee has called on the Government to delay the introduction of its Making Tax Digital scheme for VAT for at least a year.

The initiative is scheduled to be introduced for more than a million businesses in April 2019.

However, criticising HM Revenue and Customs (HMRC) for failing to adequately support small businesses in the run-up to its introduction, the Committee finds that many companies will not be ready by next April.

In “Making Tax Digital for VAT: Treating small businesses fairly” (available at http://bit.ly/2DU3CzQ), the Committee notes that a six-month deferral has been given to some organisations in the public sector, but not to small businesses – which have the fewest resources available to manage their transition.

The Committee therefore recommends that two actions should be agreed: to delay making the scheme mandatory by at least a year; and to introduce a transition provision that would allow them to join it when they are ready.

Observing that the Government has failed to listen to earlier warnings, the Committee highlights a number of concerns, including the lack of free software products, fears that the costs to businesses will be far greater than HMRC’s impact assessment and an unfair penalties regime.

“Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier,” Committee Chairman Lord Forsyth of Drumlean warned. “The Government must delay its introduction.”

As we reported in October (“Pilot steers course through digital VAT scheme”), half a million businesses have been invited to test-drive the new online VAT service before it enters into force.

Further details of Making Tax Digital can be found at http://bit.ly/2CRALfh.