The UK government faces a backlash from backbenchers due to fears that plans to digitise HMRC (Her Majesty's Revenue and Customs) tax returns by April 2018 face significant delay.
The House of Commons Treasury Committee identified "serious shortcomings" with the strategy that it said were sufficient to postpone implementation by at least a year in a report published last Saturday.
The "Making Digital Tax (MTD)" report warned that inadequate implementation would cause errors in the submissions process that could seriously disrupt the tax system.
"Without sufficient care, MTD could be a disaster," said Andrew Tyrie MP, chair of the Treasury Committee.
"Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, Making Tax Digital could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither."
The committee was particularly concerned that the costs and administrative burdens for very small businesses were excessive and that there had been insufficient engagement and consultation with the business community so far.
The former, said Tyrie, could force many businesses to close or move into the hidden economy.
"This may undermine the extra revenue that the Government is expecting to raise from MTD, scored in the August consultation document at £625m, possibly larger now," he said.
As the accountancy bodies have argued in evidence, and as the Committee concluded: 'It is plausible to suppose that, in so far as MTD results in fewer customer errors, those errors will have been as much in the exchequer's favour (such as forgetting to record deductible expenses) as they have been in favour of the individual taxpayers'."
The inadequate consultation was described as the result of the rash speed of implementation.
"At present, many of those on whom demands from MTD will be made – millions of small businesses up and down the country: the backbone of the economy - are ill equipped to handle the reporting requirements," said Tyrie.
Making Digital Tax risks and recommendations
The government was advised to abandon a planned initial threshold of £10,000 as there was insufficient evidence to justify a threshold below the VAT threshold, £83,000 and to delay the scheduled implementation date of April 2018 until at least 2019/20.
The committee also recommended conducting comprehensive pilots of the proposed system with full protection for participants against any risks, and argued that the pilots conducted so far were of limited worth as they had only involved participants invited by HMRC.
"Clearly, those who might be worst affected by MTD are the most likely to decline the offer, greatly reducing the value of the information collected," said Tyrie.
Future pilots should gather data from the entire reporting cycle, across four quarterly updates and an end-of-year reconciliation before full implementation, and the government needed to set out plans to support a fully functioning market in appropriate software, the committee added.
Evidence from ministers will be taken by the committee once the government has responded to the report.
More bad news for government digital strategy
In separate news, the government faced further criticism on its digital plans from Science and Technology Committee chair Stephen Metcalfe MP today over the delayed publication of the digital transformation strategy and response to the committee’s "Digital Skills Crisis" report.
The government reply was not received until this January, more than six months after the report was published in 13 June 2016. Metcalfe wrote to minister for digital and culture policy Matt Hancock MP on January 13 that he was particularly disappointed in light of the continued absence of the government’s "Digital Strategy", which much of the report explicitly addressed.
Then-digital economy minister Ed Vaizey told the committee that the strategy had already been written and was pending a publication slot as far back as March 2016, but it remains unpublished nearly a year later with no release date in sight.
"We have maintained a hope that this indicated that the Government was taking our recommendations on board in the Strategy – redrafting it as necessary," wrote Metcalfe.
"But the recently provided government response to our report provides no information on how recommendations about the strategy will be addressed.
"Indeed, without the strategy being published alongside the response it is difficult to see why the response could not have been produced within the usual two-month period."
The government’s strategy was announced in December 2015 with the intention of making the UK the default place entrepreneurs want to start new digital business and support a digital transformation in government.