The draft legislation on Making Tax Digital is now out for consultation for a short four week window, which does not give stakeholders, business and tax advisers much time to respond to the radical overhaul of the tax reporting system for business.

The government has also not confirmed when it will decide on the exemption threshold, currently set at £10,000. There have been calls for a reset at the VAT threshold of £83,000.

Commenting on the government’s response to consultation feedback, Frank Haskew, ICAEW head of tax, said: ‘In addition to making some helpful announcements, for example that spreadsheets will be allowed as part of digital record-keeping, the government is allowing more time for further consultation on the two major areas, namely what should be the exemption limit for smaller businesses and the implementation timescale – these are positive steps which we welcome.’

‘We are concerned, however, that the government has given stakeholders only four weeks to respond to the draft legislation as opposed to the usual 12 weeks. We trust that the government will continue to consider comments on these provisions and refine them as part of the Finance Bill 2017 and make changes as necessary.’

No delay

ACCA’s head of tax Chas Roy-Chowdhury said the association was pleased that logistics for business have been taken into account, and that there was to be further consideration on initial exemption thresholds and deferring the changes for some small businesses.

‘But we are disappointed that there is no full scale deferral especially in the light of Brexit, business uncertainty and the changes ahead - we hope the government's final decision will be a wholesale deferral to 2020 so that business can prepare.

‘We also believe that SMEs need to be exempt at least to the VAT threshold at £83,000,’ Roy-Chowdhury said.

Lack of planning for pilot

CIOT also signalled its concerns about the tight timescale in which to resolve issues, notably the exemption threshold, and suggested a year’s deferral, arguing it was unclear how valuable the proposed MTD pilot is likely to prove.

CIOT president Bill Dodwell said: ‘If pilots are planned to start from April 2017, MTD will already be live before the pilot has finished a full reporting cycle, given that the end of year return for 2017-18 might not be due until the end of January 2019. So once again this is an argument for delaying the new regime’s start date beyond the intended April 2018.

‘Additionally the promised software isn’t yet available for anyone to see its capabilities, or know how many providers of free software will actually deliver in the envisaged timeframe.  There is also no ability yet for agent access. All of these things make the case for delay even stronger.

‘Moving the UK to a digital tax system will undoubtedly bring benefits but the scale of the change is so significant that it would benefit from being carefully phased in.’

On the plus side, it acknowledged that raising the cash basis entry and exit limits for unincorporated businesses up to £150,000 and £330,000 from April 2017 was a welcome move, particularly as it will come into effective before mandatory quarterly reporting in April 2018.

Penalty system

Another area of concern in the runup to the release of the feedback documents was the issue of penalties, although some concerns have been assuaged by indications that HMRC will take a soft line on penalties initially.

Yvette Nunn, co-chair of the ATT’s technical steering group, said: ‘We are very pleased to note that HMRC will consult further in relation to the penalty provisions that will arise from the Making Tax Digital changes. This demonstrates that the department really does want to create an effective penalty regime that is both fair and practical.

The ATT is encouraged by the confirmation by HMRC that the Government will need to consider further issues such as the start date for compulsory digital reporting and the exemption limit. The Association has long called for a delay to the implementation date of quarterly reporting by at least a year.

On the cost implications of transition to Making Tax Digital, ATT is sceptical about the £280 figure cited by HMRC as the one-off transitional cost for each business.

It is calling for the publication of an updated impact assessment on the cost to businesses of Making Tax Digital. This was not included in the material published on 31 January, although there was some information on the general overview documents. There is normally a separate impact assessment document.

External evidence such as a survey of ATT members suggests that there will be no ongoing cost saving for business, especially if as expected businesses will need additional professional help.

‘While we do appreciate and support the long term logistical benefits to tax collection in Making Tax Digital, the government’s claim that business will save money has never been demonstrated.

‘The project needs testing fully, and time given not only for software developers to develop solutions but time for them to be tested, while also allowing for taxpayers to investigate the solution relevant for them.’

Lack of communication 

The lack of communications around Making Tax Digital, which has been promoted to tax professionals, while leaving the business community with very low levels of awareness, means that much more needs to be done to communicate and promote the changes to a wider audience.

David Belbin, managing partner at Clemence Hoar Cummings LLP, said: ‘Making Tax Digital has still not been very well publicised and based upon recent  experience at the firm’s local chamber of commerce, only about 20% of people had heard about the project.’

Some concessions on the part of HMRC were a welcome sign that the tax authority was at least listening to some of the concerns about the data processing and reporting requirements.

‘HMRC has listened to the responses and softened some of the more difficult aspects,' he said. ‘Allowing Excel, presumably by the use of templates, is a massive relaxation from the original proposals. HMRC really does not like spreadsheets, so the software to link up to them will no doubt have an audit element for the formulae.’

The rushed speed of the introduction of Making Tax Digital has also come in for criticism.

Simon Denton, a tax partner at accountancy firm Milsted Langdon, said: ‘The 200-page consultation response published on 31 January with a month for additional responses summed up perfectly the issues with Making Tax Digital – “poorly thought through and rushed”.’

‘The announcements contain some concessions albeit they appear to be little more than window dressing,’ he added. ‘Spreadsheets will now count as “digital records” but will have to link to accounting software in order for quarterly submissions to be made.’