Making Tax Digital — House of Commons, 2019-02-19
Topic: Macroeconomics
Melvyn John Stride (Conservative, Centre-right): With permission, I would like to make a statement on making tax digital for business It has never been more important for businesses to be able to seize the opportunities that digital technology offers. Making tax digital helps them to do just that, and I am pleased to update the House today on Her Majesty’s Revenue and Customs’ progress in delivering this important modernisation of the UK tax system. Businesses that are registered for VAT and whose taxable turnover exceeds the VAT registration threshold of £85,000 will be required to use digital tools to keep their business records and to file their VAT returns for periods from 1 April It is important to be clear that MTD is not changing what businesses do for VAT—the frequency of reporting and tax rules remain unchanged; rather MTD is about making it easier for businesses to get their tax right by transforming how businesses keep their records and send their information to HMRC. Under the changes, those who do not already keep their records digitally will be required to start doing so, but the process of then sending returns to HMRC will become more straightforward, with their VAT returns generated and sent direct from the software they are using to keep their records In my last update to the House in July 2017, I announced that I was slowing the pace of the roll-out of MTD to give businesses, particularly small businesses, more time to prepare. I set out then that the start date for MTD would be April 2019, that it would be limited to VAT at that time and that the smallest VAT-registered businesses would not initially be required to use it. The extra time that these changes provided has been well spent. The pilot for the MTD VAT service has been running successfully since April 2018 and was opened up to the public in October. I can announce today that over 16,500 businesses are now signed up to the service, and I would encourage all those businesses that will be mandated to use MTD from April to sign up now and get used to the new service Businesses such as the oldest family business in Britain, R J Balson & Son, a butchers based in Bridport, Dorset established in 1515, just six years into the reign of Henry VIII, are already making the switch from keeping paper records, and prior to that no doubt records on parchment. The benefits to those moving to MTD are clear: it gives businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs. Indeed, the Enterprise Research Centre in 2018 found that, for microbusinesses, web-based accounting software delivered productivity increases of 11.8% In a world where businesses are already banking, paying bills and shopping online, it is important that the tax system keeps pace, but MTD is not just about providing a modern, digital service for businesses but about helping them get their tax right. We know that keeping records on paper and submitting VAT returns to HMRC manually results in errors. In a recent YouGov poll, 61% of businesses said they had previously lost receipts, and errors can also occur in the manual transposition of data or manual calculations. Some £9.2 billion of the UK tax gap is attributable to errors just like these. MTD will be a step change in addressing this, closing the tax gap by around £1.2 billion to 2023-24. The service builds on the way in which many UK businesses already operate and they have seen the benefits that digitising will bring. Starting a business and taking control of its future will now be easier than ever Some have questioned HMRC’s decision not to produce its own software for businesses, but I make no apology for overseeing the development of a diverse software-supplier marketplace that caters to a variety of needs, ensuring that businesses have the tools that they need to succeed. Software developers have responded positively by producing software at a range of price points, including free products, and offering different levels of functionality. That includes bridging software for those who want to continue to use spreadsheets for record-keeping, as well as fully integrated accounting software that provides additional functionality to help users to better understand and plan for their business More than 160 software products are already listed on HMRC’s software choices page as part of the MTD VAT pilot, and I know of many others that are currently being developed. Our approach to the provision of software means that businesses will be able to choose a product that suits both their budget and their needs. That includes some products which have been developed specifically to support different types of sector, such as specialist products for farmers However, it is not just HMRC and the software industry that are getting ready. HMRC’s latest research, which I can now share with the House, shows that in December 2018, 81% of the mandated population were aware of MTD, and 83% of those had started to make the necessary preparations. HMRC will have written directly to every business that is mandated to join MTD by the end of this month to signpost them to the help and support that they need in order to prepare. Now that the January self-assessment peak is over and HMRC is expanding its communications activity, we are confident that awareness and take-up will increase still further HMRC wants to ensure that MTD lands well and that customers feel supported throughout their transition. The first stagger of businesses that file quarterly will not need to submit their first VAT return through the new service until August this year. We will continue to listen to our customers to ensure that the right support is available to businesses as they become familiar with the new requirements of MTD. I must make clear that during the first year of mandation, penalties will not be issued for late filing but only for late payment. There will, of course, be a process to claim an exemption from MTD on the basis of digital exclusion owing to factors such as disability or problems with access to broadband, or on religious grounds. Any business that is already exempt from online filing for VAT will remain so under MTD without having to reapply Some have questioned the timing of these changes, and, in particular, have mentioned the proximity to the date on which the UK will leave the European Union. I can reassure the House that MTD is designed to enable businesses to meet their UK tax obligations as simply as possible, regardless of the outcome of EU exit discussions, and is designed to complement other business tax obligations. We will continue to work closely with the software industry and with business over the coming weeks to ensure that that happens HMRC has made good progress in preparing for MTD. The pilots have progressed well and the full functionality of MTD has been tested with a wide range of different businesses, including some below the VAT threshold which have chosen to take part voluntarily. HMRC is ready, the software market is ready, and hundreds more businesses are getting ready every day by joining the pilot. MTD will help unlock the potential of UK businesses, putting them on a stronger footing to compete internationally, maximising productivity and simplifying business processes I commend my statement to the House.