Autumn Statement report highlights Making Tax Digital concerns

25 Jul 2017

The Treasury Committee‚ s annual report on the Autumn Statement (this time also incorporating the Spending Review) included, as has become usual, assessments by the Chartered Institute of Taxation (CIOT), ICAEW and ACCA of the tax measures in Autumn Statement measured against the principles that tax policy should be fair; support growth and encourage competition; provide certainty; provide stability; be practicable; and provide for a coherent tax system

The Committee concluded that, ‚ In summary, the submissions noted that the Autumn Statement was relatively light on tax measures and that it was broadly neutral with regard to the principles of tax policy (CIOT marked it at six out of ten and ICAEW scored five of the measures as ‚ amber‚ , two as ‚ red‚ and one as ‚ green‚ ).‚ The Committee added that, based upon the assessments of the three expert groups, ‚ they [the tax measures] largely fail to comply with the principles of tax policy established by the Committee in the last Parliament‚ . The Committee said it would return to this issue in more detail as part of its inquiry into tax policy and the tax base.

The Committee particularly highlighted the tax bodies‚ concerns over Making Tax Digital (paragraphs 28-31 of the report): ‚ All of the written submissions from tax bodies expressed concern over the proposals to make it mandatory for businesses to give HMRC quarterly updates and scepticism at the way that this would contribute to a cost saving for businesses of £400 million by the end of 2019/20 as well as considerable uncertainty as to how it will operate.‚ The Committee noted that the OBR, in oral evidence, had stated that the estimates of government revenues from the MTD programme (£920 million over the forecast period) were based on an HMRC survey of the types of errors made in tax returns. The Economic and Fiscal Outlook ascribes a high uncertainty rating to these figures.

The Committee concluded that ‚ increased digital interaction with HMRC by taxpayers may carry benefits, provided it reduces the administrative burden on them without affecting the amount of revenue collected‚ . But the quarterly reporting requirement ‚ may create additional burdens‚ and it was ‚ premature to make the case for these plans on the grounds of simplicity and convenience for taxpayers. The main benefits appear to arise largely from additional revenue to the Exchequer, partly at the expense of cash flow to businesses where they need to pay their tax earlier, and partly as a result of a reduction in errors. Much more consultation over the detail is required before this policy is implemented. Legitimate concerns of businesses about the burden that may be caused by this policy need to be addressed by HMRC and the Treasury.‚

The Committee also reported criticism of the stamp duty surcharge from economists and tax bodies: ‚ In written evidence, the Chartered Institute of Taxation highlighted the ‚ fragmented way in which [recent] taxation changes‚ in the private rental sector had been introduced, and commented that, from the perspective of individual and trust landlords, ‚ the principles of fairness, certainty, stability, practicality and coherence had all been overlooked‚ .‚ ICAEW and IFS were also quoted. The Committee argued that stamp duty on residential property transactions ‚ causes distortions in both the housing and labour markets‚ and ‚ the surcharge is likely to give rise to further perverse incentives, including for landlords to place residential properties under a corporate umbrella.‚ They concluded the case for a reconsideration of the system of property taxation in the UK was strong.

Other points made in the report include:

Tax burden ‚ this is rising from 33.0 per cent of GDP in 2014‚ 15 to 34.2 per cent by 2017‚ 18 but the ‚ tax lock‚ appears to be leading the Treasury to find additional revenues in less conventional ways Deficit reduction ‚ while the OBR‚ s March 2015 forecasts indicated almost all the planned fiscal consolidation over this Parliament coming from spending cuts the July forecasts saw a shift in the balance to 80:20 and November forecasts indicate a further shift to 75:25 Surplus ‚ the OBR assessed there was a 45% chance Chancellor won‚ t reach his surplus without further tax rises / spending cuts

Blog by George Crozier, External Relations Manager, the Chartered Institute of Taxation