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HMRC questioned over whether it can make tax digital on time

HMRC is determined to pursue its Making Tax Digital initiative, which will mean a change in the way businesses operate as New Statesman Tech has reported before. Last time we covered the issue the question was whether it was sufficiently well known that the tax regime was changing to digital-only; this time the House of Lords has uncovered, during a meeting of the Finance Bill Sub-Committee yesterday, that at least part of the system is likely to be delivered six months late.

The motivation for the change is clear: first it’s likely to be cheaper than the traditional means of assessing tax, which nobody is saying; second, as Jim Harra, director general, customer strategy and tax design, told the committee, in spite of companies (particularly smaller ones) employing accountants, many still find difficulty in presenting as compliant.

Moving to quarterly, real-time reporting rather than once a year should overcome a great many of these issues, and also will help growing start-ups that find themselves unaware they have moved over the VAT threshold and therefore need to go back and charge VAT to 12 months of customers (in practice they’re more likely to pay the VAT themselves if it’s affordable, rather than alienate the customers).

All of which is excellent as long as it’s going to work.

HMRC faces late delivery

As anyone who has to submit a tax return will know, HMRC charges a fine for late delivery of a tax return. This could be ironic as it emerged on the committee that HMRC may itself be delivering its new system late.

The timeline should mean that records from April 2018 will be delivered in the new manner (so companies will still be submitting old-style records until January 2019). However, part of the scheme will not now be delivered until October this year, giving it only six months for a “dry run”.

This makes a nonsense of HMRC’s insistence that it will start a full-blown trial of the scheme for one year from April 2017. That’s self-evidently before the October date so how a complete test is feasible is uncertain.

Harra remained confident that the testing and implementation schedule could be met. The full question and answer session is available to view here.