The Independent View: Making tax digital

Making Tax Digital (MTD) is a £1.3 billion investment programme intended to transform the tax system in the UK, making it more effective, more efficient and facilitating payment of the right tax at the right time.

The Association of Accounting Technicians (AAT) shares the government’s ambition for the UK to have “the most digitally advanced tax administration in the world” but like many interested parties we believe the timescale for achieving this is now very challenging.

Last month the Chairman of the Treasury Select Committee, Andrew Tyrie MP, wrote to the Chancellor seeking to delay implementation “perhaps for a few years”. The Federation of Small Businesses would like a ten year delay and of course HMRC would prefer no delay at all.

AAT believes that delays should be kept to a minimum but that HMRC should take a pragmatic view on implementation. If significant technical difficulties arise then HMRC mustn’t press ahead simply to meet a politically imposed deadline. Proceeding under such circumstances risks substantially increased administration costs and reputational damage for HMRC. It also risks reduced compliance by taxpayers.

Universal Credit (UC) serves as a recent reminder of a less than successful government IT programme where pressing ahead despite the consequences has caused difficulties for recipients, financial losses for the taxpayer, reputational damage for all involved parties and a legacy of mistrust for future large scale government projects. The National Audit Office described the UC programme as beset by “weak management, ineffective control and poor governance” with £34m written off on failed IT programmes and at least £100m more on the programme as a whole. It is vital that HMRC learns lessons from examples such as this.

The very smallest companies will be exempt from MTD. HMRC has proposed an exemption threshold for unincorporated businesses or landlords with a gross income of under £10,000. AAT favours a phased implementation programme for MTD whereby the qualifying threshold is set at £83,000 (the current VAT threshold) falling to the personal allowance threshold (£11,000) over a three year period.
Adopting a phased implementation programme of this nature will assist SMEs whilst simultaneously helping HMRC achieve the best possible policy outcome. Revenue implications are minimal and yet the phased process of implementation would significantly increase the effectiveness and value for money of the programme.

This is because a three year phased implementation programme provides more time for businesses to adapt – and for accountants to continue educating and raising awareness amongst their client base.

What’s more, by linking the threshold to the personal allowance at the end of this three year period, the need to regularly revisit the limits of an arbitrary figure, such as the proposed £10,000 limit, is avoided.

A higher exemption threshold better reflects AAT member’s views too. Whilst less than 5% of AAT licensed accountants who responded to our MTD survey supported the £10,000 threshold, 65% supported a personal allowance limit. AAT focus groups on the subject supported a higher limit of £83,000 (the current VAT threshold).

Whilst the HMRC consultations are light on detail, making comprehensive responses difficult, HMRC has provided reassurance by repeatedly stating it’s in listening mode. Myriad suggested modifications are available, as indicated by the various recommendations put forward by many different individuals and organisations. However, few offer a genuinely win-win outcome like the proposal put forward by AAT.

* Phil Hall is Head of Public Affairs and Policy at the AAT

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This entry was posted in The Independent View.
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4 Comments

  • Steve Trevethan 4th Nov '16 - 2:34pm

    Thank you for a most interesting and useful article!

    “[T]he most digitally advanced tax administration in the world” is an delusional cliche which obstructs clear analytical thought and discussion as well as effective implementation. Such fantasy sporting metaphors are an obstacle to transparent, efficient and effective governance.

    Please let us not pretend we are competing in some imaginary tax gathering Olympics.
    Tax gathering needs criterion referencing .

  • Simon Banks 9th Nov '16 - 1:48pm

    Fine ambitions, but if the taxpayer encounters a question (s)he doesn’t understand, will there be a human on the end of a line to explain it?

  • Thank you!

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