Editor | 14 March 2019
Chancellor pushes on with Making Tax Digital

Chancellor Pushes On With Making Tax Digital

The Chancellor Philip Hammond has confirmed that he will push ahead with Making Tax Digital for VAT reforms in April, despite warnings that many firms are not ready for the change.

In the Chancellor’s written ministerial statement, he said that Making Tax Digital “is an important first step in this modernisation of the tax system to which the government remains committed.”

In a nod to the some of the scheme’s critics, the Chancellor also said that the government would take a ‘light touch’ approach to enforcement in the first year and would not penalise businesses that ‘are doing their best to comply’.

But this has done little to convince some business representatives. Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said: “Business communities across the UK will view the lack of action to ease the administrative and cost burden related to the introduction of Making Tax Digital as a major misstep by the government. Our Chamber research shows that with only a matter of weeks to go there still isn’t sufficient understanding or preparation among businesses to make its rollout a success right now.

“While steps have been taken to have a light touch approach to penalties in the first year of implementation, businesses will want to know how this will work in practice and seek reassurances that HMRC’s already stretched resources will be able to cope with supporting businesses through such a fundamental change to the tax system.”

Making Tax Digital is the government’s flagship tax digitalisations scheme. The scheme is designed to make it easier for individuals and businesses stay on top of their taxes and make fewer mistakes.

From April, VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 will need to use special software like FreeAgent or Xero to keep digital VAT records and submit them to HMRC.

Eventually, all other taxes will need to be filed and collected in this way - including income tax - but this has been postponed until 2020 at the earliest.

Several influential MPs and business leaders warned against implementing Making Tax Digital for VAT.

Lord Forsyth Drumlean, who chairs the Economic Affairs Committee, said that rushing the implementation could undermine the ambition behind the scheme, resulting in more errors.

He said: “We have warned before that there has been no proper preparation for the change; not only have businesses not been given sufficient time, but this is being done at the very moment when we're leaving EU and there's enough uncertainty as it is. 

“We are not persuaded that there has been sufficient support and help for businesses migrating to new software, and given this, we didn't buy the argument that it would result in fewer errors. Estimates of how much this will cost of businesses were derisory and not properly done. It is being rushed and will result in extra stress on businesses.”

IPSE, an association representing self-employed people, warned that the implementation could have a dramatic impact on the smallest firms.

Simon McVicker, IPSE’s Director of Policy, said: “We are concerned that many self-employed businesses simply don’t know about the new requirements. The costs for implementing these changes could be higher than government predictions, so we’d welcome a further delay to give our smallest businesses some extra breathing room.

“A surprisingly large number of very small businesses still keep paper records. They don’t have access to in-house accounting and finance departments like bigger businesses and are therefore at greater risk of being disrupted by the new reporting requirements.”

Miles Grady, Director of Cloud Accountant said: “There are now just a couple of weeks to go until Making Tax Digital becomes a reality for thousands of VAT-paying businesses. If you haven’t prepared for the changes, it isn’t panic stations just yet, but you should seek expert guidance as soon as possible.”


Cloud Accountant specialise in software-based accountancy platforms including FreeAgent and Xero. For more information, please speak to a member of the team today. Call: 0808 281 0303.