Andrew Tyrie, chair of the Treasury select committee, welcomed HMRC’s decision to exempt small firms and the self-employed whose primary income from a business is below £10,000, which he said was ‘common sense’.

‘They should have been given this exemption in the first place. Still, those businesses above the threshold will be left with what could be a heavy administrative burden. The consultation period will provide an opportunity to consider a further rise in the threshold, thereby exempting more of them.

‘Some ground is now finally being given, but probably not enough. The fundamental problem remains: making digital recording compulsory for businesses – particularly small businesses – will be a substantial new burden on them. I hope that the consultation period will provide an opportunity for the penny to drop on this as well,’ Tyrie said.

Earlier this year Tyrie wrote to the Treasury asking for a full impact assessment of the costs and administrative burden of MTD, plus a timetable for its ‘gradual’ introduction.

Now the Association of Taxation Technicians (ATT) has reiterated its call for a change to the timetable for the implementation of quarterly digital reporting by at least a year, saying the delay in publishing the MTD details and the impact of the EU referendum result need to be considered.

Making digital recording compulsory for businesses will be a substantial new burden on them

Andrew Tyrie, chair of the Treasury select committee

Yvette Nunn, co-chair of ATT’s technical steering group, said: ‘While we are certainly pleased that HMRC has decided to allow a one year deferment period for the next rung of small businesses and landlords with income over £10,000 but below an as yet unspecified limit, that will still leave many other unincorporated businesses, including some fairly sized partnerships and landlords who will need to operate within the new digital rules of MTD from 6 April 2018.

‘It is still important that there is a robust system that is fit for purpose in place for those businesses and that they do not suffer from a bad experience by being used as “guinea pigs”’.

The Low Incomes Tax Reform Group (LITRG) has welcomed the decision to offer complete exemption from MTD requirements for those businesses that are deemed ‘digitally excluded’, but warned HMRC must avoid an ‘over-selective’ approach to this.

Anthony Thomas, LITRG chairman, said: ‘We trust that HMRC will take a very broad view of the digitally excluded and not be over-selective or restrictive in deciding who should benefit from the exemption.

‘It is also vital that those who cannot use digital systems for their tax affairs are not left behind in terms of the quality of service and information available to them, as this could undermine trust in our tax system.’

For its part, the ACCA is warning that the UK’s decision to leave the EU will have a fundamental impact on the proposals, which it claims has not been addressed. This relates to the question of when taxpayers will need to submit their details and make payments, and the penalties to be applied to those who fail to file and pay on time.

Chas Roy-Chowdhury, head of taxation at ACCA, said: ‘The penalty regime for tax has always been driven by return deadlines, with fixed “drop dead” trigger points built into the timetable. But under MTD that anchor point for the process disappears.

‘What’s worse, the penalty regime will need to recognise and take into account the intentions and technical capabilities of those who’ve failed to report properly. In short, the whole basis of compliance promotion will have to be revisited.’

The whole basis of compliance promotion will have to be revisited

Chas Roy-Chowdhury, head of taxation at ACCA

Roy-Chowdhury says that up until the referendum vote, the VAT rules, which under EU law require returns to be submitted at set intervals, provided the necessary framework.

‘With that fixed point from which to hang the penalty framework, there would be no need to revise the volumes of law and precedent governing taxpayers obligations to file for VAT. The Brexit vote throws all of this into confusion,' he said.

Chas Roy-Chowdhury believes that at some point in the next few years, most likely around the end of 2019, VAT in its current form will cease to apply in the UK and it will almost certainly have to be replaced by an economically similar UK consumption tax.

‘In designing that tax, the UK government will have a choice between perpetuating the return based format, or exercising its freedom to align the operation and administration of the new tax with all the other activity related business taxes under MTD.

‘Operationally a consistent reporting and penalty basis would benefit business; timetabling issues driven by misalignment of fiscal years, accounting periods and VAT staggers could be abolished. Legally it would reduce the volume of regulation, and crucially enable HMRC to apply a consistent policy across all areas of business reporting,’ Roy-Chowdhury said.

However, he warns that this approach faces difficulties as currently HMRC is planning to make the switch-over to MTD style reporting for VAT during 2019/2020.

‘Should the government compound the upheaval of MTD for VAT with the revolution of introducing a new tax on an entirely different basis after just a few reports? Or retain the historic legal basis, embedding the complexities of dual penalty regimes?

‘Or perhaps there is a third way – abandon MTD for VAT until we know just what’s going on. Business has enough on its plate without short term transitions which will be obsolete before they even come into force. A coherent approach to creating a uniform basis for business taxes across the UK seems an obvious priority,’ Roy-Chowdhury said.