Treasury Calls Out HMRC on Cost of Making Tax Digital for SMEs

Making Tax Digital


Andrew Tyrie, chairman of the Treasury Committee, has questioned the true cost to small businesses of HMRC’s Making Tax Digital (MTD) plan, after estimates from the Treasury and FSB were found to vary widely.

Estimates “Cannot Both be Right”

Andrew Tyrie raised concerns after learning that the Treasury has estimated the transitional cost to small businesses will be £280 per business over the period 2017-18 to 2020-21 – while calculations by the Federation of Small Businesses (FSB) has put the cost at a much higher £2,770 per year per business.

Mt Tyrie wrote to Jane Ellison, the financial secretary to the Treasury, and Mike Cherry, chairman of the FSB, voicing his concern over the discrepancies and enquiring about the methodology used to produce both figures, stating that they “cannot both be right.”

“The compliance cost estimates are so far apart that at least one of them must be wrong. I have written to both the Treasury and the FSB to ask for detailed supporting methodology for their estimates,” explained Mr Tyrie.

“If the FSB are right, the effects of Making Tax Digital would be crippling for many small businesses. If the government are right, businesses have something to gain in the longer term and one would expect them to be queuing up to join the pilot.”

Last week, HMRC said that, according to its forecasts, the one-off transitional costs will be £100m for UK businesses in 2017/2018, rising to £500m in 2018/19 and falling the following year to £350m, with total transitional costs between 2017 and 2021 estimated at £980m.

But the FSB previously claimed that, as it stood, the estimated average cost of implementing the mandatory aspects of MTD would be £2,770 per business.

“Harming Entrepreneurship”

The Treasury Committee has already made its worries over the Making Tax Digital plan known, stating in a previous report that it was concerned about both the initial set-up and ongoing costs to businesses and lack of information about free software. They expressed fears that “the costs may well exceed the benefits” and that “the overall impact of MTD could even be negative.”

When the FSB produced their MTD cost estimate, Mike Cherry warned:

“At a time when FSB research shows that investment and growth intentions are subdued, the government should be looking at how the tax system can support small businesses to boost the economy rather than harming entrepreneurship.”

“The programme cannot begin before 2020 without causing considerable disruption to economic growth, investment and employment. As small business owners plan their approach to Brexit, rushing in mandatory quarterly tax reporting is a headache they just don’t need.”