The Government has removed the Making Tax Digital legislation from the new Finance Bill being rushed through parliament.
No Digital Tax in Finance Bill
The Finance Bill is one of a number of bills being rushed through due to the premature dissolution of parliament, which is closing on May 3rd to allow time for General Election campaigning.
Chancellor Phillip Hammond has cut around half of the bill’s clauses and schedules, including those that relate to the continued implementation of the Making Tax Digital reforms.
The Finance Bill, which is the longest on record, only had its second reading in the House of Commons on 19 April and must pass through three further stages in the Commons before going to the House of Lords, so it was imperative that the Government slimmed it down to have it passed by 3rd May.
Digital Tax Delay Welcomed
The move has been welcomed by the many MPs, Lords and professional bodies who have expressed serious concerns about the proposed tax reforms and the speed of their implementation.
Both the House of Commons Treasury Committee and the House of Lords Finance Bill Sub-Committee have also objected to the reform, concerned that it was being implemented in a rush before it had been given thorough consideration and an adequate trial.
There were concerns that the proposals would put particular pressure, both time-wise and financially, on smaller businesses and that the software and systems would not have been properly tested before implementation, which would have happened as early as April 2018 for income tax for some businesses.
The Treasury Committee was also concerned about the cost of the reform to businesses, particularly in light of the large discrepancy between the estimates from the Federation of Small Businesses (£2,770 per business per year) and the Government (who estimated that businesses would make a net saving after initial costs of £280 per business). The discrepancy led the committee’s chairman, Andrew Tyrie, to urge the Administrative Burdens Advisory Board to undertake an independent review of the costs and the provided estimates to “shed some light on which assumption is closer to reality”.
Peter Dowd, Labour MP for Bootle, said the news would be a “great relief to many small businesses, given the onerous requirements for quarterly reporting.”
“No one is against a move to a digital tax system, but we do not agree with the rush to implement it,” he added.
The Chartered Institute of Taxation also made a statement welcoming the decision.
“While this isn’t an ideal way to take a Finance Bill through parliament, the government and opposition both deserve praise for agreeing to take the most controversial and/or complex provisions out of the Bill so they can get the further scrutiny they merit when parliament returns after the election.”
Tax Digital Will Still happen, Says Treasury
Jane Ellison, the financial secretary to the Treasury, said that the Government realised the reforms warranted much longer debate than was allowed in the shortened hearing – which saw the final three parliamentary hearings rushed through in five hours.
However, she insisted that Making Tax Digital is still on the agenda.
Speaking in the Commons debate on the Finance Bill, she said: “The government remain committed to the digital future of the tax system, a principle widely accepted on both sides of the house.
We recognise the need for the house to consider such measures properly [and] that is why we have decided to pursue those measures in a Finance Bill in the next parliament, in the light of the pressures on time that currently apply.”
Government and opposition ‘deserve praise’
ACCA welcomed the decision to drop Making Tax Digital. Chas Roy-Chowdhury, head of tax at ACCA, said: “ACCA has raised some serious concerns about the implementation plan for MTD, and we advised at last week’s Treasury Select Committee hearing that it be delayed until after the general election to ensure that there is time for full and comprehensive debate.”
The ICAEW said that the decision to remove the Making Tax Digital regulations was “sensible”.
Anita Monteith, ICAEW tax manager, commented: “This is a sensible decision by government. Making Tax Digital plans remain controversial and need more scrutiny by those who will be affected, and most importantly proper parliamentary debate – a clear roadmap as to how MTD will work in practice is needed.
“MTD is not coming into effect until April 2018, and the announcement of the general election on 8 June 2017 provided an opportunity to withdraw these clauses and Schedule from the Finance Bill which will be debated today and likely to be enacted on 27 April.
These seminal clauses and Schedule can be reintroduced after the election which will allow more time for proper scrutiny. Pending reintroduction of the provisions after the general election, the government should prioritise addressing the detailed questions that have been raised about how MTD will work in practice.
We believe that this is a logical and pragmatic decision which will help ensure the government gets MTD right the first time.