Richard Wild, head of tax technical team at The Chartered Institute of Taxation (CIOT), talks about the digitalisation of the UK tax system.
Following its removal from the Finance Bill, what does this mean for Making Tax Digital?
Well, if the current government gets re-elected, we expect the legislation to be re-tabled for Making Tax Digital. So we will see new clauses in a new Finance Bill, and new draft statutory instruments to deal with all the detailed rules and requirements of MTD. The trial is going to continue although the launch, for lack of a better term, in terms of opening it out to taxpayers generally, has been deferred because of the election and purdah, and we presume that will happen mid to late June. So in that scenario it is likely to be business as usual – we’d be looking at the same implementation deadlines and the same timetable for the same people.
Has the government carried out sufficient consultation on MTD?
I think what’s happened is the government has, in my view, consulted too late in the process. So, all the consultation documents that were issued last August were at stage two of the consultation process. There’s a consultation framework where you start from stage one, which is all about setting objectives and identifying options. And then once HMRC’s got firmer ideas they move to stage two and look at choosing the best option and how to implement it. On MTD, the consultation seems to have really started at stage two rather than stage one and I think that’s the missed opportunity. We’ve set down a particular path and direction of travel before sufficient consultation has actually been carried out.
Do you believe the government’s estimated costs to be accurate? Do these costs pose a real threat to a small business’ survival?
Well, I know the Administrative Burdens Advisory Board have looked at HMRC’s numbers and also those of the Federation of Small Businesses and, in broad terms, I think they imply that HMRC’s are too small, but the FSB’s are too high. It’s very difficult to say what the cost is going to look like because actually we don’t fully know what compliance with MTD is going to require. It’s not the same as doing four tax returns or five tax returns a year. But equally I think HMRC have probably underestimated the amount of time it’ll take people to learn a new way of working, and how much reliance people place on their accountant to check things when they interact with HMRC.
Would you support a proposal which would see voluntary filings for small businesses?
Yes. And in a way that’s what the pilot is trying to do, to get people on board and familiar with it before it becomes mandatory. Ideally we’d like that period to be longer – you want a system that is so good people want to use it rather than being forced to use it. If you force someone to do something then a natural reaction is to push back, but if you show people the advantages and how well its working then they want to join because of its benefits.
Do you think in the pilot there’s enough variety in the number of businesses taking part and across sectors as well?
We don’t know yet because the pilot at the moment is only a handful of businesses and when it gets opened up that’s when the opportunities will come for different businesses and industry sectors. It’s going to be very difficult for agents in the early days because they won’t have the same access and functionality that the taxpayers themselves will have, so in the early parts of the trial you might get some enthusiastic unrepresented or self-sufficient clients. Later in the trial, perhaps summer/autumn time, although the timing will vary between software, the agent access and functionality is expected to come on stream so you’ll get more represented taxpayers joining the trial.
But it’s down really to HMRC, and the professional bodies, and the software companies, to promote the trial to get this breadth of businesses to see how it’s working for everyone.
Should businesses see MTD as an opportunity to improve their efficiency and embrace the digital world we operate in?
Yes, they should. For some businesses it won’t make too much difference at all. So, if you’re a landlord and you’ve got, say, two buy-to-let properties, Making Tax Digital might have limited impact because your income and expenditure will be relatively straight forward whether you record it manually or electronically. So for some businesses it’s not going to bring them any benefits.
But for many it should help them get more of a handle on their business because of the obligation to keep digital accounting records at a time when they generate the income or pay the expense – they can see a better real time position of how their businesses is doing compared to the cliché of putting all your receipts and bank statements in a shoe box and then your accountant maybe 18 months later telling you how well your business has done for that year. So, it will give businesses a lot more insight into how well they’re doing. A lot of people are very negative about MTD and I’ve got some sympathy for that. But there are some real benefits and one of those will be if businesses keep their records more accurately, more timeously, of course that’s going to help you understand how your business is doing.
What can businesses with little digital experience do to adapt to the measures?
Well, whether or not they start the trial formally, we would certainly encourage them to try out some software or apps. Speak to your accountant if you’ve got one – their accountant is likely to be able to recommend a product that would be suitable to their business, just to try out the change in approach from taking your receipts and putting them in a box, or from recording them manually, to just trying a bit of software out. Then, over time, they’ll be used to this process of starting to keep digital records, then when it is mandatory they will be in a much better position than if they leave it until the last minute, and then panic because they’re not prepared.
Do you think we’re still on track to become the most digitally advanced tax administration in the world by 2020?
I think that will depend on how the trials go. If the trials are successful and it gets rolled out at the timescale that HMRC expects, then quite possibly we will be. But I don’t think we should rush to be the first, just so we can say we have the most digitally enhanced tax administration. I think we should get there at a pace that we think is achievable and manageable for HMRC, for businesses and their agents, and for software providers. If that means we need to get there more gradually, that’s what we should do.
This interview first appeared in today's Accountancy Age. Accountancy Age is running regular interviews with finance professionals about Making Tax Digital, read them here.