By Phil Hall Making Tax Digital Making Tax Digital campaign success for AAT 8 Mar 2017 During his Budget speech, the Chancellor confirmed that the threshold for Making Tax Digital (MTD) will be increased from £10,000 to £83,000 until April 2019 when it will revert to £10,000. The exemption from MTD for small unincorporated businesses or landlords with a turnover or gross income from property of under £10,000 per annum may have been a sensible starting point but the fact that less than 5% of AAT licensed accountants who responded to our MTD survey supported this limit demonstrates the desire of most to have a higher threshold. AAT has always accepted that the calls for MTD to be optional ignored the key objectives of the concept whilst also noting that a compulsion at all costs model was equally fraught with dangers. As a result, back in October 2016, AAT proposed an alternative solution that went some way to meeting the needs of both sides of this argument. We recommended that the threshold should be set at £83,000 (the current VAT threshold) falling to £11,000 (the personal allowance) over a three year period. A phasing exemption of this nature would provide: more time for agents to educate and raise awareness amongst their client base agents with scope to improve their familiarity with the MTD processes through experience with VAT registered businesses prior to full implementation clarity that MTD remains compulsory, that there will be no delay but there will be phased implementation to both help the business community and help HMRC achieve the best possible outcomes the maintenance of customer confidence and goodwill Linking the exemption limit to the existing VAT threshold allows many of the smallest companies additional time to get to grips with the challenges and opportunities MTD presents whilst ensuring larger companies, who are likely to be better equipped to do so, remain within scope. Furthermore, the majority of VAT registered businesses already undertake quarterly VAT returns so are used to undertaking quarterly reporting of some of their financial affairs. Whilst many other organisations suggested a VAT threshold limit, AAT was alone in suggesting a phased implementation programme that started at this level but gradually reduced over time. We included this idea in our consultation responses, met MPs and Peers from all sides of the political divide to discuss the issue and exchanged dozens of emails and phone calls with politicians over a six month period. We also wrote to the Chancellor to outline these plans back in January as part of AAT’s Budget submission. We are therefore delighted that all this hard work, engaging with members through surveys and focus groups as well as with politicians and various other stakeholders – and sticking to our beliefs despite considerable opposition – has paid off. The change will benefit millions of SMEs, accountants and agents across the UK, HMRC and the economy as a whole. It’s a genuinely win-win result. However, issues remain. AAT has always suggested the limit be reduced over time to the personal allowance (£11,000) instead of £10,000 – something 65% of AAT members supported in our 2016 survey. It’s therefore rather frustrating that HMRC remains wedded to the idea of eventually reducing the threshold to an arbitrary £10,000. By linking the threshold to the personal allowance, the need to regularly revisit the limits is avoided. The £10,000 figure also means many businesses whose profits are far less than the personal allowance and currently pay no tax would still need to go through the MTD process. Something the Treasury Select Committee described as “palpably absurd.” So, as is often the case, we have achieved a great deal but there is more to be done. Phil Hall is AAT's Head of Public Affairs and Public Policy.