I rise to speak to amendments 7 to 11, which relate to the Government’s Making Tax Digital proposals. I do not think I will be able to get in any references to ancient Rome or Greece, unlike my colleagues, because of the subject matter.
Given that the debate on this package of measures has been ongoing since the first version of the Finance Bill, Labour’s many concerns have been well rehearsed at every stage of the discussions. However, they are not our concerns alone. They echo the worries of businesses, service providers and the trade associations that represent them, including the Institute of Chartered Accountants, the Chartered Institute of Taxation and the Federation of Small Businesses.
We recognise that Labour’s repetition of and emphasis on the potential damage that the measures might have had has led to a number of concessions over the summer. The Government had to concede that the timeline for implementation was not feasible and undertook a U-turn to delay the implementation of digital reporting for VAT until 2019. The Federation of Small Businesses described that change to the timetable as a “lifeline for small firms”. Labour has also ensured that there is an exemption for small businesses operating under the VAT threshold of £85,000.
However, we do not believe that those changes are enough. That is why Labour proposes this package of amendments today. To be clear, we support the principle of digitising tax returns, as we would any measure that purported to simplify the compliance and reporting burden on UK businesses and that might help HMRC efficiently and accurately to collect the amount of tax it is owed. That does not change the fact that the Government have made a chaotic mess of implementing Making Tax Digital. This significant and important change to the system needs to be approached with due care and attention.
If the Government’s measures are carried out as currently proposed, there is a risk that added costs and unintended consequences will be passed on to small and medium-sized businesses, as tax experts and accountants have warned. The Government’s target implementation date is unrealistic and unworkable. What is more, it will coincide with the uncertainty created by Britain’s departure from the EU, which is already creating a significantly tougher operating climate for small businesses. I note the comments made by Conservative Members during the debate on the first group of amendments about not wanting a review of any measure in the Finance Bill to coincide with Brexit. I am sure that they will apply that view consistently to this package of measures.
To be frank, nobody is sure whether HMRC or business can be ready for the implementation date. At present, the plans are rushed and poorly thought through. This is why our amendment proposes that the date is put back to 2022 to allow time for consideration and compliance, and to avoid a clash with our exit from the European Union.
4 pm
We need to see robust evidence and proof that the software for Making Tax Digital is effective, not least if the Government want to keep to their 2019 implementation timetable. So far, that has not been forthcoming. We have not heard feedback on the pilot schemes for this software and nor have we heard details of how HMRC proposes to train its staff in time for implementation. Businesses need time to accustom themselves to using the new system, and we cannot see how there is sufficient time to pilot, test and run the software in time for 2019, while allowing for that to occur. We therefore propose in amendment 8 that the Chancellor must report on the suitability of the software before full implementation is rolled out.
The final issue on the Making Tax Digital proposals that we wish to raise today is quarterly reporting. As outlined in Labour’s 2017 election manifesto, we believe small businesses underneath the VAT threshold should be permanently exempted from mandatory quarterly reporting. It presents an unnecessary compliance burden, and risks adding costs and administration to small businesses with insufficient evidence of benefit. It is Labour’s belief that the Treasury, having made the mistake of already accounting for the revenue they believe they will raise from these measures, is now ill-advisedly committing to rushing them through so as to avoid creating a further black hole in the public finances, but these are enormous changes that must be implemented with due care and attention. We urge the Government to give them more time.
Too often, the Government have exercised a sloppy approach to policymaking, with disasters such as universal credit a direct result of ignoring the evidence available from pathfinder schemes and the testimony of stakeholders. Britain’s small businesses cannot afford a similar disaster in the implementation of Making Tax Digital. We therefore ask the House to listen to us and to the warnings of independent experts outside this building, and support this pragmatic and sensible package of amendments today.