The first pilot started in October this year and will involve. 1000 participants. The second pilot will begin in April 2
HM Treasury, 1 Horse Guards Road, London, SW1 A 2HQ The Rt Hon Andrew Tyrie MP Chairman, Treasury Select Committee House of Commons Committee Office 14 Tothill Street London SW1H 9NB
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November 2016
Making Tax Digital
Thank you for your letters of 15 September and 27 October and for sharing the feedback the Treasury Select Committee has received about the Government's Making Tax Digital (MTD) proposals. I do appreciate your taking the time to draw these concerns to my attention, and also the exchange of correspondence you had with my predecessor on this issue. I apologise for the delay in replying to your most recent letters. MTD aims to deliver a tax system which keeps up with technological advances in wider society. Increasingly taxpayers expect to be able to interact with the tax system through digital channels, as they do in commercial transactions and with other service providers. In addition, MTD will make it easier for businesses to get their tax right, including , as you point out in your letter, increasing awareness of reliefs and support available to them through nudges and prompts. The latest figures for the tax gap caused by error - more than £8 billion - show the importance of doing all we can to support businesses in this regard, reducing the inconvenience and cost of HM Revenue and Customs (HMRC) interventions. Mandating the changes ensures that we secure these benefits for businesses and for the taxpayer. As you are aware, the Government published a number of consultations on 15 August, which closed recently. The consultation period included a conference, 15 roundtable meetings, 14 webinars
and other speaking events. HMRC and HM Treasury officials continue to review and consider all the responses received. I can assure you that final policy decisions will take account of all these responses and our ongoing discussions with businesses and professional bodies. Since we spoke about MTD in the summer I have had useful meetings with the Federation of Small Businesses (FSB), the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales amongst others. I understand that the Treasury Select Committee has received evidence from a number of sources on their concerns regarding the transitional cost of the changes, including from the FSB. HMRC has not seen the assumptions underpinning the FSB's analysis, but will consider the report when it is available alongside the evidence provided through the consultation. The Government will set out a full impact assessment through the Tax Information and Impact Note, which will be published alongside the draft legislation. However, as part of the-c onsultation , HMRC published an initial assessment of the impact of the changes on business based on two different scenarios (with ongoing savings post transition of £85m and £250m). I am confident that this reform will deliver steady state savings to business. As you are aware, the Government has consulted on what financial assistance is appropriate to help support businesses through the transition, and will set out its plans in due course. Clearly with a reform as important as this timing of the roll-out is key. The Government intends to implement MTD gradually over a number of years, starting with Income Tax and NICs from April 2018, before being introduced for VAT in 2019 and corporation tax in 2020. The Government's response to the consultations will provide further clarity on timings and exemptions. Nevertheless, the staggered start dates will allow time for systems to be tested and refined at the piloting stage, before being released more widely. HMRC will be running two pilots for Income Tax Self-Assessment and is recruiting a variety of businesses, from those who file on paper to those who use agents and software. The first pilot started in October this year and will involve 1000 participants. The second pilot will begin in April 2017 with around 400,000 businesses across a wide range of trade sectors and geographical areas. There will also be pilots for both VAT and corporation tax in due course.
There is no doubt these reforms are significant for all parties businesses, agents (and others) who represent them , the software industry and HMRC. I am grateful to all those who have contributed to the consultation; we will continue to engage widely with all stakeholders to ensure we deliver this programme of change successfully. I look forward to an ongoing dialogue with you about Making Tax Digital, and would , of course, be happy to discuss these proposals further with the Treasury Select Committee in due course .
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~ Jane Ellison MP
