In response to a consultations with the business community throughout 2016, HMRC has issued further information about its plans for Making Tax Digital. It comes just weeks after a report by the Treasury Committee recommended that the timeframe for digitalisation be pushed back and the threshold for digital reporting be raised in line with that of VAT reporting.
The UK200Group is the UK’s leading membership association of independent chartered accountancy and law firms across the UK, whose firms act for a total of around 150,000 SME clients.
Richard McNeilly, Managing Partner at Dains Accountants and Chair of the UK200Group Digitalisation Taskforce, said,
“Whilst the direction of travel to a digitised environment is welcome, it is important to consider the impact to SMEs. HMRC will no doubt point out that processes will be simplified and therefore that the transition will be timely and ordered. But at what cost to the SME? The more the information is ‘dumbed down’, the more likely it is that SMEs will miss out on available tax reliefs.
“Of course, SMEs can choose to use accounting software but it has yet to developed to deal with Making Tax Digital and so my question remains: why the hurry? Cynically, you could argue that ‘the hurry’ will lead to a big increase in the overall tax take, but more realistically the insistence in working to a 2018 start date will cause confusion, anxiety and pain for SMEs, already grappling with a myriad of business issues.
“A leading economy must be productive, so let’s help SMEs rather than hindering them. I encourage HMRC to take a look again at the overwhelming feedback from the SME community and defer the rollout of Making Tax Digital.”
Andrew Jackson, Head of Tax at UK200Group member Fiander Tovell and Chair of the UK200Group Tax Panel, said,
“It is very disappointing that HMRC have not taken much account of the responses to its original proposals. Despite the accountancy and tax professions – and SMEs themselves – expressing grave concerns over the practicality of the proposals, almost no changes have been made. In almost every case, HMRC’s approach has been to acknowledge that there are concerns, but to confirm that the original proposals will be followed anyway.
“What is particularly worrying is that HMRC have shied away from committing themselves on the major issues. The key questions for small businesses are what the threshold for inclusion will be and whether there will be a year of grace, but HMRC have simply said they are still considering these points. The key issue for tax professionals is to have a look at the long-awaited draft legislation, but the seven pages of legislation simply provide for regulations to be made at some point. It almost looks as though HMRC have handed in some half-done homework to avoid missing the deadline, hoping that they can fill in the blanks later.
“MTD is an exciting prospect that could deliver enormous value for the UK, but only if it’s done correctly. However, although the start date for MTD is now just over a year away, we still don’t have any clarity over these proposals. HMRC are rapidly running out of time if they’re going to do things well, rather than quickly. They should acknowledge that more time is needed, defer the start date by at least one year if not two, and use the additional time to develop their approach and test their systems before they are imposed on taxpayers.”
Francis Whitbread, Tax Partner at UK200Group member firm Edmund Carr, said,
“Given the fact that the implementation date for MTD for many UK businesses is 6 April 2018, it is disappointing to see HMRC have not been able to provide details of compliant software for MTD. Do they have any idea how long it takes to successfully introduce a client to a new accounting system? What we need now is some substantive information on software providers, the form the quarterly summary will take and other issues.
“Another question: the purpose of MTD, we are told, is to remove the scope for taxpayer errors and the consequent underpayment of tax, remove the worry and uncertainty that comes with an HMRC enquiry, and give businesses a better record of how they are faring. How will requiring businesses to submit data on a quarterly basis achieve those objectives? Presumably, HMRC will be reviewing the data for anomalies and investigating accordingly. The problem is, if adjustments for items such as stock and amounts owing to and by the business are only dealt with on a once a year basis, as HMRC anticipate, the quarterly data will be of limited use for analytical review purposes.
“Finally, where does the accountancy profession fit into MTD? Although the largest number of responses to the consultation came from accountants, limited notice seems to have been taken of their views. Whatever HMRC may think, it is taxpayers’ agents who are currently the main reason why their clients pay the correct amount of tax, by ensuring their tax returns are a correct and complete record of the business’s activities in the accounting period in question.
“MTD will not work unless accountants and tax advisors continue that role, something which the government replies do not really acknowledge. The possibility of agents having direct access to their clients’ digital tax records has again been ignored. As accountants, our primary concern is our clients. We do not want MTD to place another administrative burden on them and have the skills to prevent that happening, but only if we are allowed to play a full part in the process.”
The UK200Group views Making Tax Digital as the key issue for SMEs in the next few years, and views it as imposing a burden on smaller firms. As such, it has set up a Digitalisation Taskforce to ensure that it can assist business owners with the transition to digital tax accounts and reporting, provide a dialogue between the SME community and HMRC and the Office for Tax Simplification, and campaign for clarity on Making Tax Digital.