Brexit uncertainty leaves question mark over Making Tax Digital

“Uncertainty” has become the word of the moment following the UK’s vote last week to withdraw from the European Union (EU).

With negotiations over the UK’s new relationship with the EU not set to begin until the autumn and the future leadership of the country still unknown, this shroud of uncertainty is now stretching across a vast swathe of public policy – not least tax.

Prior to the Referendum, there was already a considerable lack of clarity about the government’s plans for its Making Tax Digital (MTD) initiative. This was highlighted by an exchange of correspondence between the Chair of the Treasury Select Committee, Andrew Tyrie MP and the Financial Secretary to the Treasury, David Gauke MP.

The Chair wrote to the Financial Secretary in April to express concerns about the cost implications of requiring SMEs to use “designated software packages” for their quarterly MTD submissions.

His letter cited Institute of Chartered Accountants in England and Wales research suggesting that “75 per cent of all businesses, and 82 per cent of sole traders, would need to change their record keeping systems to comply with the government’s new proposals for Making Tax Digital.”

In response, the Financial Secretary confirmed that “designated software packages” would be required – something that will potentially lead to difficulties for many businesses.

Up to that point it had been understood that businesses would be able to use their own choice of software package for their tax returns and this could include widely-used packages including MS Excel.

Until last week’s vote, the expectation had been that the government’s long-awaited consultation on MTD would take place immediately after a vote to remain in the EU, allowing businesses and the accountancy profession to have their say on the proposals. But with the government’s main priority now being the fallout from the EU referendum, it is no longer clear when this consultation might take place.

MTD had been expected to be phased-in by 2020, but whether this date will be met may now be highly dependent on the UK’s new political arrangements post-Brexit.