MPs have asked the Federation of Small Businesses and the government to show the working behind their estimates of the cost of HMRC’s Making Tax Digital reforms to businesses, following discrepancy between their figures.

The government said it would cost businesses just £280 to go digital – 10 times less than the Federation of Small Businesses’ estimate – Photo credit: PA 

The government recently published the final details of the reforms of the tax system, which will require businesses to keep digital records and produce quarterly – rather than annual – updates for HMRC.

The aim is to reduce avoidable errors in tax returns – which HMRC estimates costs the public purse £8bn a year – but it has come under fire for placing too much of a technological and financial burden on businesses.

Related content

HMRC promises thorough pilots for digital tax reforms but stops short of delaying launch
MPs call for delay to implementation of ‘over-ambitious’ digital tax plans
Chancellor told to go slow with digital tax plans

Some estimates of the cost are in the thousands, with the Federation of Small Businesses telling the House of Commons Treasury Committee that the move to a fully-digital system could cost each business £2,770 a year.

However, the government’s latest version of the plan said that the cost would be just 10% that: £280 per business over the period 2017-18 to 2020-21.

This, the government said, would include time spent getting used to new digital tools and quarterly submissions and the cost of new apps and software upgrades. It also suggested there would be long-term savings to businesses.

The discrepancy has now been raised by Andrew Tyrie, the chairman of the Treasury Committee, who said that the cost estimates were “so far apart that at least one of them must be wrong”.

He added: “If the FSB are right, the effects of Making Tax Digital would be crippling for many small businesses. If the government is right, businesses have something to gain in the longer term and one would expect them to be queuing up to join the pilot.”

Tyrie has written to both Jane Ellison, financial secretary to the Treasury, and the FSB to ask for detailed supporting methodology for their estimates.

In his letter to FSB national chairman Mike Cherry, Tyrie wrote: “As you know, the government have now published their own estimate. They claim that the cost to business is around 10% of your estimate. You cannot both be right.”

He asked Cherry to “set out in full” the methodology behind his organisation’s estimate – as well as to “take a close look” at the government’s impact assessment.

Meanwhile, Tyrie said to Ellison: “You have provided some detail to support your estimate. I would be grateful for any further information that you have to support that number.”

He added that he expected to discuss the estimates with the chancellor, Philip Hammond, when he gives evidence to the committee in April.