10 May 2016
Financial secretary to the Treasury David Gauke has outlined plans to transform HMRC into one of the world’s most digitally advanced tax administrations, a proposal likely to have wide-reaching ramifications, according to one taxation expert...
Jason Piper
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IMAGE: Crown Copyright 2015.
Do you fancy knowing what your tax bill would be at the push of a button? Never having a January panic again as you realise, on top of the family Christmas credit card bill, you’ve somehow got to find an unexpected cheque for HMRC?
But what about buying new a new smartphone or computer, and learn how to use new software, just for HMRC’s benefit? Would you volunteer to prepare your accounts four times a year, instead of just once, and then have to do a tax return on top? Do you trust an HMRC computer to get your business’s taxes right without you having to check them?
HMRC’s latest initiative, Making Tax Digital (MTD), could involve all of the above becoming a reality for every small business, so it’s vital they speak to policy makers before the summer is out.
As anyone who runs a business will have noticed, technology is changing the way you have to deal with the authorities.
If you’re VAT registered then you (or your agent) will almost certainly be filing online. If you’re incorporated then it’s the same picture for corporation tax returns, and the vast majority of self-assessment income tax returns are filed online these days, too.
The most recent change has been real-time information (RTI), which employers will definitely have heard of, but sole traders and partnerships may not. Over a quite compressed time frame (April 2012 to October 2013), every employer in the country had to move over to filing its PAYE information online to HMRC.
While there were (and still are) teething problems, on the whole, it was a success – or at least, not a failure. Large employers upgraded their own systems, advisors who hadn’t previously used software started to do so, and smaller employers unable to handle the filings mostly moved over to using an agent. HMRC was able to provide free software, which works for the smallest employers, while those without internet access have mostly had to appoint and pay agents who can file for them.
Off the back of that broadly positive experience, HMRC and the Government have announced they want to go another step further and, as well as records of employment related taxes, they want to get regular updates on tax information for every business in the country. The logic and benefits look to be much the same as for RTI – improved information reduces the risk of error and consistent formatting will make HMRC’s job easier – both for processing compliant taxpayers’ affairs and data mining to identify the non-compliant.
At that high level, the logic seems obvious as increasing numbers move online to shop, chat and consume media content. Around 86% of the UK adult population used the internet in the first three months of 2015, according to the Office of National Statistics, and that figure is likely to include most business owners.
But, as a business owner, maybe you’re happy enough to use the internet in your private life, but don’t necessarily trust it for all your business affairs?
Or maybe, while you can see the benefit in some areas, you don’t want it to be compulsory for everything. Online ordering may be great for those printer cartridges you’ll be needing soon, but it’s not so handy if you need an extra pint of milk.
And yet compulsory online everything for everyone is the basis of HMRC’s new MTD proposal. It started life in March 2015 as “making tax easier”, but by December the detail started to emerge and the name had changed. HMRC and minister David Gauke are keen to stress they’ll be consulting “in detail” throughout 2016, but the timetable is fixed and many would say too ambitious.
The first businesses are going to be reporting all their tax information to HMRC online, quarterly, in real time from 2018. That means the legislation will have to be in the 2017 Budget, so it’ll need to have been written by the end of 2016 – realistically, well under way by late summer this year.
We don’t know yet how they’ll be managing the roll out, but it sounds as though it’ll be based purely on size, not sector. So spare a thought for the farmers – many of them still use a historic 30 April year end – in January 2016, they’ve only just reported and paid the tax for May 2014. In April 2018, before they’ve even reported on 2016, HMRC is going to ask them for an online breakdown of what they’ve been doing over the past few weeks – and somewhere, somehow, they’re going to have to close up the reporting gap.
But even if you already keep your records online, and up to date, there’s still going to be an additional step. HMRC wants you to send it details, probably more or less in line with what you do for VAT (assuming you’re registered), of your headline financial information so you can be kept up to date with your evolving tax liability. You may think that sounds great, or think it sounds like a nightmare.
The aim is for the reporting to be “light touch” – because every business in the country is expected to keep its records using apps, so just a single touch of a button will send HMRC what it wants out of your records. The reality may be quite different.
Once you’re keeping your records online in the HMRC-approved format, that may well be the case. But before that, you need to start using HMRC-approved software for your records. We don’t yet know exactly what that software will look like, but we do know it won’t be just an Excel spreadsheet.
HMRC seems to be taking the line that since employers were able to cope with RTI, often by asking agents to file for them, small businesses will be able to cope with this. But the ask is very different this time around. HMRC like to quote proportions and percentages to show how MTD would be good for the majority. But, sometimes, it’s good to look at raw numbers. For example, there are 490,000 small and micro businesses that don’t communicate with the Government online now – and would still not do so even if all other options were removed. There’s another 300,000 “can’t, but would” and a further 1.9 million who are going to struggle.
And what about the “light touch” interaction? The Cabinet Office assessed various bits of the Government’s online presence of how easy people will find it to use, on a scale from one (never have, never will) to nine (expert). HMRC’s self-assessment offerings come out one notch below the highest, scoring an eight “confident user” requirement – and yet, the MTD target audience are mostly languishing at five (learning the ropes) or below.
None of this means MTD is destined to fail. Because, as the authorities are keen to tell us, they want to consult on how to make it work. But, of course, there is a risk this could fail – and the problem is, if it does, then it won’t be in a “Government’s systems are broken, but it doesn’t affect us directly” sort of way, it’ll be along the lines of “I’ve been given impossible obligations to meet and I’m being penalised for failing to meet them”.
And remember, it’s not just HMRC that is involved in implementing this. It’s got to come from Parliament, and MPs have already debated it once. The takeaway here is that you need to spend a few minutes to write, or email, a letter to your MP. If you can’t find a template online, contact your local trade body or ask your accountant about it.
Digital services really can do a lot of good for the right businesses – but there are others where they just aren’t relevant. Think carefully about what would work for you, and what might even add value to your business – planning, cash flow, even just basic record keeping – and, if it’s best done online, then tell HMRC and your MP how that would work.
If it wouldn’t work for you, tell them, now – because you won’t get another chance and you will be left struggling to cope.
