HMRC 'is not listening to small businesses' so Making Tax Digital should be delayed, say peers

The government's ambitious scheme requiring businesses to file tax information digitally should be deferred by a year because it has failed to ensure the small firms are ready, a damning Parliamentary report has concluded.

A total of 1.2m businesses with a turnover above £85,000 will be required to use the new Making Tax Digital (MTD) system to file VAT returns from next April, but 400,000 are still unaware that they need to do so, the House of Lords Economics Affairs Committee said.

"HMRC has inadequately considered the needs and concerns of smaller businesses," it claimed, and while some public sector organisations have been given an extra six months to prepare, small businesses with the fewest resources to manage the change have not been helped in the same way.

The Committee, which accused HMRC of being "alone in its confidence that all one million businesses will be ready", recommended waiting at least a year until MTD for VAT is made mandatory, and transitioning in stages to allow businesses to join when they are ready.

It also said that the next stage of MTD covering other taxes should not be implemented until at least 2022 so lessons from MTD for VAT can be learnt and acted upon.

Committee chairman Lord Forsyth of Drumlean said: "HMRC has neglected its responsibility to support small businesses with Making Tax Digital for VAT.

"HMRC is not listening to small businesses, while offering a six-month deferral to many in the public sector.

"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. The government must delay its introduction."

The Committee also said the costs to businesses of MTD for VAT will be far more than HMRC's assessment, and it criticised as "unconvincing" claims by government that MTD for VAT will increase the amount of tax collected.