The demise of Making Tax Digital: Are the rumours exaggerated?

Following the government’s removal of the Making Tax Digital clauses from the Finance Bill, have we seen the last of the digital tax initiative? Brian Palmer is confident of its resurrection post-election.

I refuse to accept that the Making Tax Digital (MTD)initiative is fatally wounded as suggested by some pundits, but I am not at all surprised that it has sustained a direct hit by yet another political bombshell. This time in the shape of a general election.

Political expediency

As soon as Theresa May announced her plans to call an election, it was immediately obvious that vast swathes of the Finance Bill 2017 (FB17) would be deprioritised. As a result, they would fail to make it through the usual inter party horse trading, which takes place to ensure that vital pieces of legislation are passed prior to the dissolution of parliament.

Indeed, almost overnight what had promised to be a mammoth Finance Bill, consisting of 762 pages, had been slimmed down to around 140 pages, a reduction of more than 80% (by volume). As part of this weight-loss-programme, all of the MTD clauses without exception simply disappeared.

The MTD clauses might have been a casualty of political expediency, but they are far from needing to be placed on life support – at least for the time being…

So, where does MTD go from here?

Of course, there are a myriad of possibilities, but I have set out in summary form the most likely post-election scenario(s) for the future of MTD:

  • If the current Government is returned with a solid majority, the dropped clauses are likely to be inserted wholesale into an early-summer Finance Bill.
  • If the current Government is returned but in a weaker state, MTD is likely to proceed, but possibly on a slower track and not necessarily in the way set out now.
  • If the current Government is not returned, or enters a coalition, then MTD could change beyond all recognition.

Looking on the positive side

While the delay to the rollout of MTD is undoubtedly a blow to HMRC, it does leave them with more time to learn from the period of controlled go-live public beta testing, where a small number of UK businesses and tax-agents have been able to enroll on an HMRC MTD pilot since the start of April 2017.

Software developers will also benefit from a period of extra time to familiarise themselves with HMRC’s application program interfaces (APIs), the coding the department has made available to trusted-developers. When embedded into third-party-software, the APIs enable their users to access, update and amend information held in HMRC’s back-end-systems, without leaving their own third-party software.

Grasping the nettle

Finally, the period of reflection that HMRC has been given presents them with a perfect opportunity to take one more look at their scope to phase smaller unincorporated businesses into MTD over an extended period, longer than the one year of deferment currently on offer.

I would much rather see on-boarding phased over period of four years, as follows:

  • Year 1: Those with turnover above £85,000
  • Year 2: Those with turnover below £85,000 and above £50,000
  • Year 3: Those with turnover below £50,000 and above £25,000
  • Year 4: Those with turnover below £25,000 and above the personal allowance

The most digitally advanced

Whatever the outcome, I do not think for one minute that MTD will not resurface, albeit possibly in a much-altered state, enabling the UK to become one of the most digitally advanced tax administration in the world.

Brian Palmer is tax policy expert at the AAT.