The cross-party Treasury Select Committee tasked with reviewing Making Tax Digital - HMRC's plan to digitise tax records and reporting - has raised serious concerns about the plans.
The main issues are the speed at which Making Tax Digital (MTD) is being introduced and the cost of compliance for small businesses.
"Without sufficient care, MTD could be a disaster," said Andrew Tyrie MP, chair of the committee. "Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, Making Tax Digital could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither."
A key concern is "the costs and administrative burdens for very small businesses - with the consequent risk that many may go out of business or move into the hidden economy. This may undermine the extra revenue that the Government is expecting to raise from MTD."
In addition, there is the speed with which Making Tax Digital is being implemented. "At present, many of those on whom demands from MTD will be made - millions of small businesses up and down the country: the backbone of the economy - are ill-equipped to handle the reporting requirements."
In fact, research conducted by YouGov for 1Tap Receipts in November 2016 found that 94% of UK business owners had not even heard of Making Tax Digital.
The Treasury report concludes: "These reforms will affect millions of taxpayers. Their co-operation 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. So the Government should change its current approach."
The report says the Government should abandon plans for an initial threshold of £10,000 and has asked to see evidence justifying a threshold below the VAT threshold of £83,000. It also says the timetable for implementation in April 2018 looks "unachievable" and proposes a delay until 2019/20 at the earliest. In the meantime, it says, HMRC need to run proper pilots.
Mike Cherry, national chairman of the Federation of Small Businesses (FSB), described the report as "a damning indictment" of the Government's mandatory tax plans as they currently stand. "The voices of the UK small business community and MPs from all parties now speak as one - the proposals as they stand put our economy at risk."
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