HMRC has "failed to adequately support" small businesses with the introduction of Making Tax Digital, a House of Lords Committee has concluded.
Small businesses could "pay a heavy price" for Making Tax Digital for VAT, and the Economic Affairs Committee (EAC) has now recommended the Government delays the scheme by one year.
Their report released on Thursday (22 November) considers progress on the Making Tax Digital programme since the Committee's March 2017 report on Making Tax Digital for Business, and the proposed introduction of Making Tax Digital for VAT for 1.2 million businesses in April 2019.
The report finds that many businesses will not be ready for the introduction of Making Tax Digital for VAT in April 2019.
In particular, HMRC has "inadequately" considered the needs and concerns of smaller businesses.
'Few resources'
The Committee notes that a six-month deferral has been given to some organisations in the public sector, but not to small businesses who have the fewest resources to manage their transition, such as many farming and rural-based businesses.
Some farmers and rural businesses fear lack of internet access will be an obstacle in the implementation of the scheme.
Indeed, Chartered Accountant Saffery Champness has said it will force many farmers and rural businesses to perform a "quantum leap" in switching from manual calculation to digital software.
In its report, the Committee therefore recommends waiting at least one year until Making Tax Digital for VAT is made mandatory, and transitioning in stages to allow businesses to join when they are ready.
While the Committee welcomes attempts to modernise HMRC's systems and increase efficiencies for taxpayers, Lords remain unconvinced by HMRC's claims that the new system will narrow the tax gap by reducing errors in submissions.
'Neglected'
EAC Chairman, Lord Forsyth of Drumlean, said HMRC has "neglected" its responsibility in supporting small businesses.
"HMRC are not listening to small businesses, while offering a six-month deferral to many in the public sector.
"Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier. The Government must delay its introduction."
Lord Forsyth added: "The Government has failed to listen to the warnings in our previous report. It must slow down its Making Tax Digital programme and listen carefully to the concerns raised by this Committee, small businesses and accountants."
