Public Services > Central Government

Government brakes pace of digital tax system transition

David Bicknell Published 13 July 2017

Smallest businesses told they can move towards digital system at pace that suits them; first step will be start of pilot of Making Tax Digital for Business for VAT by end of this year


The government has applied the brake to plans to implement a new digital tax system, saying three million of the smallest businesses and landlords will be able to move to the revamped technology for keeping tax records “at a pace that is right for them.”

The announcement came as ministers today set out the next steps for the Finance Bill.

Earlier this year, shortly after the announcement of the General Election, the government said there had been no change to its Making Tax Digital policy that aims to create one of the world’s most advanced administrations for taxation.

However, following consultations with opposition parties, a number of clauses around the digital future of the tax system, were omitted from the drafting of the bill. Citing time pressures before the election on June 8, the government said an alternative Finance Bill setting out digital taxation rules would be published over the course of the next parliament.

The government said it recognised parliamentary calls for further considerations of Making Tax Digital implementation plans, particularly for small businesses, citing ongoing concerns raised by the Treasury Committee and its then chair, MP Andrew Tyrie.

Now, the government has said it has listened to the concerns about the pace of change adding that it is taking steps to ensure a smooth transition to a digital tax system.

Mel Stride, financial secretary to the Treasury and Paymaster General said, “Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.

“We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”

Under the new timetable, only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes; they will only need to do so from 2019; and businesses will not be asked to keep digital records, or to update HM Revenue & Customs (HMRC) quarterly, for other taxes until at least 2020. Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.

It means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system. As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

In addition, all businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.

The government said HMRC is “fully committed” to supporting businesses in this transition. It has started piloting Making Tax Digital services and will continue to do so, the government said. HMRC will start to pilot Making Tax Digital for Business (MTDfB) for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. It said this will allow for over a year of testing before any businesses are mandated to use the system.

Changes to VAT reporting are due to come into effect from April 2019 from when businesses above the VAT threshold have to provide their VAT information to HMRC through Making Tax Digital software.

The original timeline for “making tax digital” and the introduction of digital tax accounts foresaw that by 2020, HMRC would have moved to a fully digital tax system.

In a written statement , the government said it will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. It said this will ensure that there is time to test the system fully and for digital record keeping to become more widespread.

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.