Small businesses could face a wait of up to 10 years before they see a return from investing in becoming compliant with Making Tax Digital, members of the House of Lords’ Economic Affairs Committee have heard. Calum Fuller reports
The proposals will see small businesses and residential landlords keeping digital records and providing quarterly updates to HMRC, with the tax authority rolling the regime out to small businesses and the self-employed first, before moving onto larger entities.
In previous large projects, such as real-time PAYE reporting (RTI), the rollouts had commenced with larger businesses first, before moving on to smaller enterprises.
The fact Making Tax Digital is not following that model was described by Lord Turnbull as ‘ridiculous’, before noting the costs for businesses ‘appear to be inversely related to turnover’.
Roger Southam, member of the Administrative Burdens Advisory Board (ABAB) – a body that sits within HMRC – told the committee that his body’s standard cost model predicted a ’10-12 year payback’ on savings for businesses.
‘The burden and sheer costs to get there are huge,’ he said. ‘For smaller businesses they won’t only be buying into software, some won’t even have the equipment, so you’re actually buying hardware as well as [potentially] software.’
No return
He later added some businesses ‘will never see a return’ on their investment in complying with Making Tax Digital.
‘The question, looking at it from the other side is “will having a digital solution make businesses more efficient and move them away from the carrier bags of receipts?” and undoubtedly that is a good idea,’ he said. ‘How you get there is the question and I don’t think forcing them off a cliff is the most sensible way to do it.’
Edward Woodall, head of policy and public affairs at the Association of Convenience Stores told the committee his organisation expects to see a 25% increase in accountancy costs for its members following the introduction of Making Tax Digital.
‘We have a sector that is quite diverse in how it approaches its accounting procedures,’ he said. ‘Those that have a central administration function for their HR will have a different approach to those doing it themselves. But HMRC’s £280 per business in its impact assessment underestimates the cost to our sector. Our sector largely outsources to accountants, and having spoken to accountants who work for people in our sector, they have said there will be around 25% increase in costs for accounting fees.’
The hearing can be watched again here.
