Making Tax Digital Update

In the last post, we spoke about the introduction of HMRC’s ‘Making Tax Digital’. We were, of course, waiting for the Government report, so on 14th January 2017 The Treasury Committee published their much-anticipated report on Making Tax Digital (MTD), HMRC’s campaign to completely digitalise the tax system. This is undoubtedly the most the most revolutionary change in the tax world since the invention of the calculator. The findings of this parliamentary committee have very real implications for you, the sole trader. They are as follows:

  1. Errors will likely fall in the government’s favour, not yours.

The possibility of administrative errors is unavoidable in the implementation of such a monstrous task. In much of the literature published by HMRC, they declare that a digital tax system will minimise errors. However, the committee concluded that errors in the systems are most likely to be errors that benefit HMRC. This is a worrying notion. Some in the accounting industry believe that the MTD scheme is simply another of HMRC’s many campaigns to target previously uncollected tax, disguised as something more elaborate.

  1. Taxpayers and businesses are not being properly consulted.

The Committee have found that a vast majority of those who HMRC make demands of (i.e. millions of sole traders and small businesses) will have virtually no say in the matter. There do not seem to be any lines of communication open, which could bring untold problems.

  1. The government’s £10k threshold for using Making Tax Digital is way off.

HMRC have declared that £10k will be the maximum a taxpayer or a business can earn before they will have to adhere to the new rules of digital tax submissions. This means that only those that earn under that amount will be able to submit tax returns in the traditional way when MTD is implemented. The Committee concluded that a more reasonable threshold would be £83k and that there was no evidence that anything below this would be reasonable.

  1. The government’s proposed timetable is also way off.

The government’s proposed timeline begins in 2018. The Committee claimed that a goal of 2019/2020 would be optimistic for the project to begin.

  1. The government has no idea how the necessary software will be allocated and how much it will cost.

No comment has been made on what software taxpayers and businesses will need to buy or use. This further leads us in the accounting industry to see Making Tax Digital as more of an idea and less of a plan. This is bad news and good news: bad news because if brought in it will likely be a disaster and good news because the starting date is probably further away than any of the dates I have mentioned above.

As an accountant, I am positive about what these changes will have on the industry that I have worked in for over 20 years.

Before the prospect of a completely digital tax system, a very particular skill set was necessary for a practice to be considered proficient. A forward-thinking attitude wasn’t essential. Now, it’s crucial to have accountants with up-to-date industry knowledge and a progressive view on the future of their profession.