Making Tax Digital dropped from Finance Bill

Plans to digitise the tax process, along with another 70 clauses, were dropped from the Finance Bill during the Finance Bill Committee Stage Debate in the House of Commons, yesterday afternoon.

The Making Tax Digital (MTD) scheme, which was due to come into effect in April 2019, will be delayed by at least a year with the possibility of being dropped completely.

Originally announced by George Osborne when he held position as Chancellor, MTD intended to create a digital tax process in a similar fashion to online banking. This digitisation of the tax system would require small business owners and freelancers to send income information to HMRC on a quarterly basis, abolishing the annual Self Assessment return.

Following General Election news, head of tax at Association of Chartered Certified Accountants (ACCA), Chas Roy-Chowdhury was asked by the Treasury Select Committee if the plans for MTD should be dropped, to which he replied they should.

“It has been clear for some time that the proposed timescale for introducing the reforms under the Finance Bill 2017 (known as Making Tax Digital) will cause particular challenges for small businesses, especially with regards to the practicalities and costs of digital quarterly reporting.”

He added: “ACCA have long called for a full deferral of MTD until 2020 to fully allow both HMRC and business to prepare and minimise disruption. In light of yesterday’s announcement there should be at least an agreement to delay any further action until the next parliament.”

Some of the other clauses dropped included plans to lower the tax-free dividend allowance from £5,000 to £2,000 from April 2018 and a cut to how much many over-55s could save in their pensions. In the case of a Conservative victory it’s likely that these clauses will be re-introduced.

These changes were decided after four hours of stage debate, a rushed time for such a hefty bill, as Bill Dodwell, president of the Chartered Institute of Taxation (CIOT) comments: “If the original bill was the weight of a family sized turkey, the act which gains royal assent later this week will be more of a ‘turkey crown for one’ portion.

However, going through 140 pages of legislation in barely two hours is still less than ideal. Hopefully this will be the last time there is a need for such a compacted process.”

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