The Lords Economic Affairs Committee says the Government need to listen to small businesses and delay the rollout of Making Tax Digital for VAT programme by at least a year.
Recently, the House of Lords’ Economic Affairs Committee has called for HM Revenue & Customs (HMRC) to halt the deployment of its Making Tax Digital for VAT programme.
A report conducted by the committee found that small businesses are unlikely to be ready for April 2019 and as a result, HMRC must begin to listen.
“Nearly 40 per cent of affected businesses have not heard of Making Tax Digital, let alone have started to prepare for a substantial change to their accounting processes,” the report said.
“HMRC is alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019. They have underestimated the time for research, planning, training and system changes that some businesses will need.”
The Economic Affairs Committee report highlighted that HMRC must treat small businesses fairly, and the April 2019 deadline could lead to “unjustifiable risks” for businesses.
The committee also raised concerns about the software required by businesses to comply with the programme, emphasising that there had yet to see any free software products offered by HMRC.
The committee explained: “The emerging software market appears difficult to navigate. It is unfair to expect businesses to make choices about their accounting software without a better understanding of the future Making Tax Digital regime.”
Committee Chairman, Lord Forsyth said HMRC had “neglected its responsibility to support small businesses” by implementing the programme.
“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 has recommended that instead of making the programme mandatory from April, HMRC should allow businesses to join on a voluntary basis for at least a year. This ensures companies are ready, but also it allows the software market to develop and ensure that the department’s systems are “fully and appropriately tested”.
Lord Forsyth said: “Making Tax Digital for VAT will make life even more difficult for small businesses, given their scarce resources to devote to preparing for the change. If HMRC insists on mandating Making Tax Digital for VAT, it has a duty to support small businesses with its implementation. So far, HMRC appears to have neglected this duty.”