Although the Chancellor appeared to be giving a major concession to small businesses on closer examination does it really amount to anything much?
The project to move to a digital tax way of administering the UK tax system continues to move forward very quickly. The self employed will be required to report quarterly figures to HMRC from 2018, with companies following suit in 2020. We already knew that businesses with turnover of less than £10,000 would be outside the scheme and we had been told that there would be a one-year deferral for some larger business. The Chancellor has now confirmed that those businesses with a turnover below the VAT threshold (£83,000) will not have to make quarterly reports until 2019.
The Budget calculations suggest that there is a cost to the exchequer of this deferral of £260m. At first sight this seems odd because making tax digital is an administrative matter and does not make any changes to tax liabilities themselves. Clearly HMRC believes that error and lack of care by taxpayers means that large amounts of tax go unreported. Making taxpayers report quarterly will, according to HMRC, reduce that error rate, so allowing smaller businesses a further year before they have to report digitally will effectively allow those errors to persist for another year.
There is widespread scepticism that HMRC’s figures for tax lost through errors are reliable and we still await a detailed breakdown of the assumptions on which they are based. Perhaps pressure from the Treasury Select Committee, which is known to be concerned about the statistics, will lead to greater transparency.
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