U.K. Said to Consider Scrapping Plan for Digital Tax System

The U.K. tax authority is considering dropping controversial plans for a digital tax system, due to Theresa May’s call for a snap election this year, according to two people familiar with the matter, reports BNA.

Her Majesty’s Revenue and Customs will say the Making Tax Digital initiative is “being dropped due to the need to follow election protocols,” Jonathan Riley, Grant Thornton U.K.’s head of tax, and one of the two people familiar with the matter, told Bloomberg BNA in an April 24 email.

Many will say the decision to drop the measure from the 2017 Finance Bill—which lawmakers will vote on April 25—is due to “concerns over the policy itself, despite recent concessions,” he added.

U.K. Prime Minister Theresa May’s surprise decision last week to seek a snap election on June 8 has caused the pressure to heighten further over the government’s plans for a digital tax system due to the risk of the government rushing them through without sufficient scrutiny from U.K. lawmakers.

The legislative process for the 2017 Finance Bill—which would usually involve a House of Commons debate as part of its third reading—will “inevitably be truncated” due to the election, the Chartered Institute for Taxation (CIOT) said in an April 19 statement on the effects of the general election. The previous day, the 2017 Finance Bill received just its second reading in the House of Commons.

2020 Target

Announced in March 2015, the U.K.’s plans for a fully digital tax system by 2020 aim to remove bureaucratic form-filling and delays for taxpayers through quarterly online updates, HMRC said in a six-part consultation published in August. Yet with the first part of the system effective from April 2018, the timeline has come under increased scrutiny from U.K. lawmakers and trade groups.

In a Jan. 10 report, the Treasury Select Committee cast doubt on the timetable, describing it as “wholly unrealistic,” as most businesses won’t be able to adapt to the system at a reasonable cost.

In a Feb. 17 report on Making Tax Digital, the Institute of Chartered Accountants in England and Wales said it was “extremely concerned” by the proposal for compulsory quarterly updates, due to doubts on whether small businesses will benefit from the administrative burden.

In an April 11 letter to Labour peer Lord Hollick, made public April 24, Treasury select committee chairman Andrew Tyrie similarly cast doubt on the benefits of Making Tax Digital for the U.K.’s small businesses. “The implementation of Making Tax Digital for small businesses certainly needs to be approached with considerable caution, and over a run of years,” he said, echoing his previous calls for a delay.

Further Changes

In addition to dropping plans for Making Tax Digital, the British government may wish to scrap complex measures set to be introduced in the 2017 Finance Bill, such as proposals to restrict the amount of interest that large companies can deduct from their annual corporation tax bills.

The measures for corporate interest restrictions take up 156 pages of the 762-page finance bill, the U.K.’s largest, according to CIOT. Partly due to these complex measures, CIOT urged the government April 19 to “drop the majority” of the bill and just keep measures key to the current tax system.

“There will be a pick and mix” of tax measures between political parties before the vote on the 2017 Finance Bill, Anita Monteith, technical tax manager at the Institute of Chartered Accountants in England and Wales, told Bloomberg BNA in an April 24 telephone interview. “Labour can obviously vote against the finance bill, and that would cause all sorts of problems for the government.”

HMRC Response

In an April 24 email, a spokesman for HMRC told Bloomberg BNA to contact Her Majesty’s Treasury on whether the tax authority is dropping its plans for Making Tax Digital in the 2017 Finance Bill.

In a subsequent email, a Treasury spokeswoman cited comments made in the House of Commons by Chancellor Philip Hammond when he said there will be “the usual end-of Parliament process of negotiation with the official Opposition” on measures currently before the House of Commons.

Parliament will dissolve for the June 8 election on May 3, according to Parliament’s website.

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