Phil Hall is Head of Public Affairs and Public Policy at AAT, the largest professional body for vocational accountants in the UK.
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.
It’s obviously in the interests of employers, employees, tax professionals, and government to have a simpler and more aligned payment system for tax, one which operates closer to real time.
It’s also in everyone’s best interests to have a tax system that better reflects modern society. According to the Office for National Statistics, 80 per cent of adults in Great Britain use the internet every day, 60 per cent of us bank online (76 per cent of those aged 25 to 34) and most of us pay our utility and mobile phone bills online without hesitation.
Whilst almost 90 per cent of Self-Assessment tax returns are now made online, the tax system for businesses remains some way off being as digital as many would like. 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.”
However, in order to achieve this, AAT believes the timescale for delivery is now very challenging, the costs are something that must be very carefully considered, and exemptions to the programme need to be more nuanced.
Last month Andrew Tyrie wrote to the Chancellor seeking to delay implementation “perhaps for a few years”. The Federation of Small Businesses (FSB) would like a ten year delay and the Office for Tax Simplification (OTS) suggest a three to five year delay would be prudent. Unsurprisingly the Government would prefer no delay at all.
AAT believes that implementation should be delayed if significant technical difficulties arise. Proceeding regardless, simply to meet a politically imposed deadline, risks substantially increased administration costs and reputational damage for the Government. 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 caused difficulties for recipients, financial losses for the taxpayer, reputational damage for all involved, 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 £100 million more on the programme as a whole. Lessons need to be learned.
The Government has claimed that MTD will save business £400m annually in administration costs, that businesses already keeping their records digitally should see “no additional costs at all”, and that free software will be made available for all businesses with the most straightforward affairs.
There seems to be little evidence to substantiate the £400m savings figure. In fact all the evidence suggests that it will cost businesses money. The FSB has estimated the annual cost of MTD to be £2,770 per business.
Likewise, a survey of more than 4,000 AAT licensed accountants found that over three quarters were concerned about software costs and the amount of time they’d have to spend familiarising themselves with new processes. Almost half are concerned about hardware costs and other as yet unknown costs too.
There must be a relentless focus on this issue to ensure the promised financial benefits are actually delivered.
It’s been suggested that exclusions for MTD should be granted for those without internet access. Whilst those who have genuine problems must be catered for, over 90 per cent of the UK now enjoys access to superfast broadband and this figure will rise to 95 per cent by the end of 2017.
What’s more, the digital services bill due to be passed later this month includes a Universal Service Obligation which will give everyone the right to request a broadband service with a minimum 10Mbps by the end of 2020 – the same target date for MTD completion.
A more compelling case for exemption can be made for exempting the smallest of businesses. HMRC has already proposed an exemption threshold for unincorporated businesses or landlords with a gross income of under £10,000.
That’s a good starting point but AAT favours a phased implementation programme for MTD. The qualifying threshold should be set at £83,000 (the current VAT threshold) falling to £11,000 (the personal allowance) 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.
It would provide 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 our member’s views too. Whilst less than five per cent of AAT licensed accountants who responded to our MTD survey supported the £10,000 threshold, 65 per centsupported a personal allowance limit. AAT focus groups on the subject supported a higher limit of £83,000 (the current VAT threshold).
The idea is a genuinely win-win solution. It’s increasingly being adopted by various other organisations, most notably the CBI and OTS, and now simply requires Government to demonstrate the genuine nature of their consultations by listening to industry and making the necessary modifications.