Over the weekend the Treasury Committee released a 48 page report on HMRC’s Making Tax Digital (MTD) plans. Whilst broadly supporting the idea of digital tax reporting, the Committee raises a whole series of concerns surrounding key issues concerning the mandation and timing of implementation, the cost to business and the potential impact on tax yield.
Concerns at a glance
- The lead time for such a fundamental change is too short.
- The benefits of the MTD proposals are unproven as they stand.
- The cost to businesses is likely to be prohibitive, in terms of time and money spent in acquiring, installing and maintaining new software.
- There is not enough information about the free software which is to be made available.
- The associated costs could actually see a reduction in tax yield, as businesses lose time spent generating income whilst coming to terms with MTD and claim the associated software expenditure in their accounts.
- Some businesses will slide into the shadow economy, if MTD is too much of a burden and cost.
In a clear signal to HMRC and the Government that more detailed preparatory work needs to be undertaken, the Committee deems the current start date of April 2018 for mandatory MTD to be ‘wholly unrealistic‘. A delay until at least 2019/20 is recommended.
The Committee also warns against trying to introduce MTD for VAT at the projected date of April 2019, in the absence of clarity about Brexit relevant changes. To do so the report notes, could leave businesses vulnerable to considerable and unacceptable disruption.
The £10,000 threshold, exempting compliance from mandatory digital reporting is considered, with the Committee noting a threshold set below the personal allowance would be ‘absurd’. As the report sets out ‘It is one thing for HMRC to impose digital record keeping on taxpayers. For them to impose it on non-taxpayers would be quite another.’
The Committee agrees with the prevailing view that it would make more sense to align the digital reporting threshold in line with the VAT threshold.
Software and spreadsheets
Calling for taxpayers to be given adequate guidance to help them choose the most appropriate software for their businesses, the Committee also acknowledges the prevalence of spreadsheets in modern day business accounting. It says HMRC needs to ensure tools are available to convert information from spreadsheets into data that can be submitted as part of a quarterly update. Until now HMRC has been reticent about accepting spreadsheets because of their bespoke nature from business to business, but the Committee is clearly pushing for a solution to be found.
Prompts and nudges
MTD compatible software will incorporate a range of nudges and prompts, in order to limit errors as far as possible. Businesses will be invited by their software to double check entries which could be incorrect before onward transmission.
Whilst recognising the potential role of prompts and nudges, the Committee expresses concern about the business owner who has received a nudge or prompt, but still made a mistake despite trying to get it right. It notes ‘HMRC will have to accept that they cannot hold taxpayers accountable for errors made in good faith in response to a prompt or a nudge and that given the complexity of the system, these exhortations could cause confusion and more cost.’
HMRC’s response to the MTD consultations is expected later this month.
Author: Guy Smith, Head of Technical Research