In a 50-page report, the committee calls for a delay to the implementation of Making Tax Digital, HMRC’s flagship project to modernise the way tax is reported and introduce the controversial quarterly reporting requirements which would result in five reporting triggers for companies, buy-to-let landlords and the self employed.

The introduction of the entire Making Tax Digital should be pushed back ‘until at least 2019/20, possibly later’, the committee said. The current plan is to start quarterly reporting from April 2018 for landlords and self employed, with micro businesses next to come online.

It also suggests the threshold for reporting through Making Tax Digital should be lifted from the currently proposed £10,000 to match the VAT threshold of £83,000. There has been criticism across the accounting profession about the arbitrary choice of £10,000 as being too low and even lower than the basic tax free allowance of £11,000 for 2016/17.

‘The committee has yet to see evidence strong enough to justify a threshold below the VAT threshold, £83,000. It may exist, but the government needs to assemble and publish it,’ the committee said.

It also called for more substantive and wide ranging pilot schemes. The committee acknowledged that HMRC has undertaken pilots of its own, but very little information is publicly available about the outcome. Businesses participating in those pilots do so by invitation by HMRC, something that the committee is concerned may undermine the value of information collected as businesses which could be adversely affected are more likely to decline.

Committee chairman and Conservative MP Andrew Tyrie said: 'The pilots need to be designed to gather information over the entire reporting cycle – four quarterly updates and an end of year reconciliation. These need to be evaluated before full implementation and parliament needs to see the evidence that this has been done.'

Software developers have also been invited to participate in the pilots, by asking their clients to sign up to trials. Again, this is arbitrary and it is difficult to tell how many businesses have actually signed up.

The lack of a ‘fully functioning market’ in appropriate software was also a source of concern to the committee, which noted the government has yet to outline how such a market would be achieved. Here again, HMRC is looking for substantial cost savings and is likely to stop companies uploading data using spreadsheets like Excel, which is hotly contested. HMRC has repeatedly said that commercial software providers will have to provide free software for use by those who do not purchase accounting software.

Undermine government objectives

Tyrie said: ‘Taken together, these [concerns] could undermine the government’s objectives – for the yield and for the economy – and discredit the approach. The collateral damage could be large. If the government gets it wrong, the culture of mutual trust and goodwill between HMRC and the vast majority of taxpayers – which still exists in the UK and which helps to keep the tax gap down – could be jeopardised.’

‘This is not a minor matter. These reforms will affect millions of taxpayers. Their cooperation and trust are both hard won and easily dissipated. Without them, more of the yield could be at risk than any putative extra revenue from MTD.’

CIOT president Bill Dodwell echoed the committee’s position. He said: ‘Rushing it through to deliver by April 2018 is just too short a timescale. There are hundreds of different providers of accounting software – in many cases adapted for specific industries and trades. Right now we have no idea how many of these will be ready and tested in time.

‘The introduction of Making Tax Digital should be deferred for at least a year to allow a smoother and more effective transition to digital record keeping, giving businesses sufficient time to prepare for the significant administrative, technological and financial implications associated with the move to digital accounting.’

ICAEW has come out even more stridently against the timetable, even suggesting that the smallest businesses should be exempt from quarterly reporting.

Frank Haskew, head of  ICAEW Tax Faculty, said: ‘The Treasury Committee has called the current MTD proposals ‘over-ambitious’. By keeping to the original schedule of introducing these changes in April 2018, the government are not giving themselves enough time to address the issues raised by the committee. The clock is already ticking and we agree with the committee’s recommendation that the implementation of MTD should be delayed. If it is not implemented properly, confidence in the tax system and in HMRC will be damaged, risking a knock-on impact on UK tax compliance.

‘The report rightly highlights the costs to businesses of implementing these changes. Mandating businesses to go digital, including the smallest businesses, will burden them with both transitional and ongoing costs which they can ill-afford at this time.

'Government should make MTD voluntary, at least for smaller businesses, and instead incentivise them to go digital rather than forcing them. If digital record keeping works for a business, they will adopt it voluntarily. It is important that Government recognises and minimises burdens to business.’

Compulsory reading

Yvette Nunn, chair of ATT’s Technical Steering Group, said: ‘The Treasury Committee’s report on Making Tax Digital rightly identifies that if the changes are insufficiently considered or introduced too hastily, much of the perceived benefit to the Exchequer from the programme could be squandered

‘There is too much at risk for both businesses and the government to ignore the Treasury Committee’s report. It should be compulsory reading for all who are involved in the introduction of the Making Tax Digital programme.’

Concerns around IT security are also paramount for tax advisers and companies alike. Nunn added: ‘We are pleased that the report notes the importance of adequate consideration being given to cyber-security issues, both in relation to the software involved and the hardware (smartphones, for example) which businesses would need to use in order to create their digital records.’   

Missing consultation

It is understood that responses to the six Making Tax Digital consultations released in August 2016 will be published by the end of January, as was stated in the Autumn Statement 2015 documentation, but the long-awaited final consultation on how it will work for incorporated businesses has still not been released.

HMRC told Accountancy last October that the incorporated businesses' consultation would be released before the end of 2016. While there is a chance that the tax authority will rush something out before the end of the month,  it seems increasingly likely that the project timetable will have to be reviewed.

A raft of webinars on the Making Tax Digital consultations last autumn attracted 1,000s of participants while responses to the six condocs were exceptionally high.

The Treasury will have the final decision on the timetable, but the government will be under pressure to try to keep to the overall principle to digitise as many government services as possible, although the complexity of the Making Tax Digital programme means that time spent finetuning the final system processes will reduce the potential for taxpayer confusion and lost revenues.

An HMRC spokesman said: 'Many businesses find it hard to get their tax bills right. Making Tax Digital will modernise the tax system, helping them get their tax bills right with the least administrative burden.

'We’ve consulted business at every step and have already made changes as a result to exempt the smallest businesses and pilot the programme with hundreds of thousands before it is rolled out. We welcome the committee’s support for the digitisation of the tax system, and will consider its recommendations carefully.'

Treasury Committee report

To read the Treasury Select Committee report on Making Tax Digital, click  here.