The plan would have required businesses to submit tax information online rather than on paper.
Many small rural businesses had warned that the change would be hard to implement without fast and reliable broadband.
It would also have would have increased workloads, particularly for the self-employed.
See also: Rural fears over online tax plan
Plans to digitise all tax-related accounting were due to be phased in from 2018 onwards.
The Country Land and Business Association welcomed the decision to drop the proposal – although it warned that the decision could be temporary.
CLA president Ross Murray said: “The CLA has consistently said that the government’s Making Tax Digital proposals were being rushed through without proper consideration for how they would work in practice."
As they stood, the proposal would had caused significant disruption and costs to rural businesses across the countryside.
Mr Murray said: “While the delay in implementing the proposals is welcome, particularly to the self-employed, it is likely to be temporary.
“We now need urgent clarity on the timescales for implementing these sweeping changes and confirmation that the implementation dates due to start next year will in fact be delayed.
“It is vitally important that rural businesses are not left in limbo and unable to plan ahead. We will be seeking clarity from the new government as soon as it is elected.”
Poor digital connectivity in rural areas and failure to undertake comprehensive user testing of the new system could throw the rural economy into chaos, the CLA warned.
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