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Where Taxpayers and Advisers Meet
Making Tax Digital (MTD) – The Truth Is (Already) Out There
11/02/2020, by Lee Sharpe, Tax Articles - HMRC Administration, Practice & Methods
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The findings of the CIOT’s and ATT’s recent joint survey on the significant cost and ineffectiveness of HMRC’s totemic Making Tax Digital regime are welcome but will surprise no one – not even HMRC, on a lucid day – because HMRC had already drawn similar conclusions from previous research (and then presumably ignored it)

Promises, Promises

The time when Gideon set hearts a-flutter by promising an end to the tax return, and to cut business red tape, is all but faded into the aether.

The subsequent assertions by HMRC that businesses would somehow save time and money by having to comply with more filing regulations, more frequently, have passed beyond the gravitational pull of incredulity and have now reached geosynchronous orbit between the twin moons of farce and ridicule. (Remember the “myth-busters” of legend? A nadir which all subsequent attempts at “myth-busting” have tried but almost comically failed to reach? Although TIINs (Tax Information and Impact Notes) can be relied on to this day – as a cornucopia of fantastical prestidigitation).

A Disconcerting Silence

Since we were last graced with a TIIN on MTD, HMRC has been quiet. Too quiet, almost. In his article Is HMRC Getting Serious About Closing the Tax Gap? RSM’s Scott Harwood noted that HMRC said  “It is not currently possible to evaluate the impact of MTD on the tax gap”. And yet it took HMRC’s “Heather Langtree” less than a year of statistical analysis to conclude that including a nudge “honesty declaration”, which a sample of taxpayers were effectively forced to make on their online VAT return submission – but which had no legal basis – had resulted in over £300 million in extra VAT revenue. And it took HMRC only ten months’ worth of PAYE data to conclude that the rollout of IR35 to Public Sector Bodies had been a rip-roaring success – despite voluminous evidence that, in fact, the so-called “reform” had resulted in rising non-compliance (only not the kind of non-compliance that HMRC was bothered about).

So, why so quiet about MTD?

 To tell the truth, HMRC has always been rather vague about the factual basis for its claims that

  • MTD will be cheap and easy
  • MTD will close the tax gap

The main reason for this is that, the more businesses realise that the whole point of MTD is to make them pay more tax, the less likely they are to accept the additional cost of implementation. This is why HMRC always refers to it as “closing the tax gap”, rather than “forcing businesses to pay more tax”. HMRC has repeatedly claimed that poor record-keeping is a significant contributor to the tax gap – this was the lynchpin of its Business Records Check campaign – but has never produced evidence to support these claims. As we have previously noted, HMRC actually withdrew a trial, pre-populating taxpayers’ online tax returns with known income data, after finding that the tax yield from returns in the trial decreased, and itself noting as it did so that “we have also seen that encouraging more compliant behaviour does not always equate to increased revenue but rather improved accuracy thereby helping tax-payers pay the right amount of tax”.

How happy would taxpayers be to find that all this time and effort were being wasted on ideology, dogma and a hunch?

Survey of Professionals

So, the CIOT and ATT have conducted their own enquiry, with a joint survey of members in practice and in industry, which yielded over 1,000 responses.

Key findings were as follows:

  • Nearly 90% of respondents said that MTD for VAT had not reduced errors
  • The costs of MTD compliance had far exceeded government estimates, with only 8% of respondents agreeing with HMRC’s estimate of ongoing compliance costs of £43 or less a year, a little more than 50% saying it cost up to £500, and the balance estimating it cost more
  • Only 14% of respondents felt that there had been an increase in productivity in their organisation as a result of MTD for VAT, rather undermining HMRC’s claims that businesses would actually benefit from the introduction of MTD

Tina Riches, Chair of the joint CIOT and ATT Digitalisation and Agent Services Committee, said:

“These initial results underline our concerns that, far from bringing benefits to businesses and the Exchequer, MTD for VAT has so far created additional, costly obligations for most businesses beyond what was predicted by HMRC… our survey demonstrates that MTD is not currently delivering those benefits to businesses, nor [is it] likely to reduce the tax gap…

The commitment of agents to help their clients comply with the new rules is commendable, and we are pleased to see that this has already been recognised by HMRC. But this level of costs borne by agents is both unacceptable and unsustainable… As we anticipated, the roll-out of MTD for VAT has proven more difficult than the Government expected. MTD for Income Tax would encompass a significantly greater number of taxpayers, many of whom will be less digitally capable than VAT-registered businesses, and would be much more complex. Taxpayers will require significant training and ongoing support, and we are concerned that their agents, the tax charities and HMRC, simply will not be able to cope.”

A Warning from Fairly Recent History

And yet, we have been here before. The previous significant digital project mandated by HMRC – Real Time Information for PAYE reporting, (“RTI”), was launched with similar claims that it would introduce annual savings to UK businesses of £300million. The reality was quite different, with the Forum for Private Business repeatedly finding that it was the main factor in increased  business compliance costs, resulting in the need to engage  payroll specialists in order to deal with the increased compliance requirements.

Finally, in 2017, HMRC undertook its own review of RTI – once the dust had settled (and there was no chance of any significant change to the regime). And colour me dumbstruck to find that:

  • HMRC thought it had all gone rather well – for HMRC
  • But stakeholders – the employers and agents actually responsible for changing their systems, routines and for filing under RTI, had suffered a lot more than HMRC had originally expected

The following is a direct quotation from that 2017 report:

    • HMRC should have been more honest to employers early on. We kept giving messages RTI would be simpler and good for business. We should endeavour to be more open from the outset
    • One-off costs for software — prices have not reduced since RTI and recurring costs to business not adequately recognised
    • ABAB [The Administrative Burdens Advisory Board] are not convinced that RTI created ongoing savings and continue to express concerns especially for small business

It’s almost as if these points had been written with MTD in mind.

Funny thing is, they were - see page 28 of the report.

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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