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Digital Tax

Making Tax Digital 

The Issue

FSB recognises the significant potential Making Tax Digital has for some small businesses – particularly around digital tax accounts. However, since it was announced in 2015, we have actively engaged with HMRC to communicate our key concerns around the proposals, including on mandatory quarterly tax reporting.

We also openly expressed our disappointment that the original proposals were announced without the public release of an impact assessment - including the costs and additional administrative burden which would clearly be involved for some businesses. Separately, we also stressed that HMRC’s digital agenda must be made in parallel with the simplification of tax policy. We communicated our widely held view that businesses should be allowed to adopt digital reporting as a matter of choice to avoid additional complexity.

Key problems with the proposal include:

  • The mandatory proposals will substantially increase administrative burdens on small businesses who already pay an average of £3,600 a year on tax and regulatory compliance.
  • Mandatory quarterly reporting won’t suit the majority of smaller businesses given that a significant minority still complete their returns manually.
  • A lack of IT skills and digital technology in small businesses where neither is vital to support the business model will require training and increased expenditure at a time when many small businesses are under increasing pressure to lower costs.

Action FSB have taken

  • In November 2016 FSB published independent research assessing the potential impact of Making Tax Digital on small businesses. It recommended implementation begin with larger businesses and be pushed back. The analysis called for the smallest firms to be exempted from the proposals altogether. 
  • FSB has called on our members to write to the Financial Secretary to the Treasury Jane Ellison MP. Hundreds of businesses across the UK took the time to outline how the proposals would have a detrimental impact on their business.
  • In September 2016, FSB secured modest concessions, with the Government agreeing to a longer lead-in time for some businesses to join Making Tax Digital as well as the offer of direct financial assistance for some small firms.
  • More importantly, the Government has agreed to remove small firms and the self-employed with modest turnovers from the proposals. This means that in addition to the 1.6 million small businesses and landlords that were already excluded from Making Tax Digital, a further 1.3 million small firms and landlords will now no longer be in scope. This means that half of the UK’s 5.5 million small businesses will not be affected by mandatory quarterly tax reporting.

Far more needs to be done to protect the most vulnerable small businesses from these proposals and FSB is now lobbying for a higher turnover exemption threshold to support more small firms who are likely to be impacted.

Over the autumn period, FSB will be actively engaging on this issue with Parliament and the wider business community to ensure the concerns of small businesses are heard.  

Our Goal

  • FSB is calling for the removal of the mandatory requirement to comply with the new proposal.
  • The proposal to implement this policy by 2018 will not work. The consultation was significantly delayed. FSB call for the implementation date to be pushed back to 2025, preceded by a period in which small firms can voluntarily choose to sign up.
  • Small firms require a commitment to upskill digitally excluded and assisted groups of small businesses if making tax digital is to succeed.

Achievements in...


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UK/Westminster

FSB secured concessions from HM Treasury which included a longer lead-in time for some businesses to join Making Tax Digital as well as the offer of direct financial assistance for some small firms. In addition, the Government agreed to remove small firms and the self-employed with modest turnovers from the proposals. This means that in addition to the 1.6 million small businesses and landlords that were already excluded from Making Tax Digital, a further 1.3 million small firms and landlords will now no longer be in scope. This means that half of the UK’s 5.5 million small businesses will not be affected by mandatory quarterly tax reporting.

FSB has also secured provision for FSB members to participate in the user-testing of HMRC’s proposed digital systems and will be circulating a concession letter from Government shortly along with a request for participants.

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