The roll-out of new digital tax rules should be halted until HMRC can prove it is not placing an unnecessary burden on taxpayers, a leading group of MPs has warned. A report by Parliament’s cross-party public accounts committee warned that it was unclear whether the controversial Making Tax Digital rules had achieved their stated aim of reducing tax errors.
Since April 2019, VAT-registered businesses and self-employed people with a turnover that exceeds the £85,000 VAT threshold have been forced to use specialist software when they file their returns. Critics say the cost of adhering to the new rules has been unreasonably high. A report by the Association of Taxation Technicians, a trade body, found that some small businesses had been forced to spend more than £5,000 on software and training.
From April 2022, HMRC wants all VAT-registered businesses to adhere to Making Tax Digital. Self-employed people and landlords with a turnover of more than £10,000 will face the extra requirements from 2023.
However, the MPs warned that small businesses and individuals were “under considerable pressure” and urged the tax authority not to ask more taxpayers to use specialised software until the costs were clear. The committee urged HMRC to assess whether Making Tax Digital was “reasonable and affordable” before widening its scope.
The Chartered Institute of Taxation, another trade body, backed the MPs’ call for greater scrutiny of tax reporting changes. John Cullinane from the Institute said he was concerned that the digital drive had caused as many errors as it prevented. He said he was aware of “disturbing” cases where businesses had wrongly been asked to pay VAT on wages or other tax payments.
HMRC said it was confident the digital tax rules would improve compliance rates.
Julie Downie, Accounts Manager