Making Tax Digital, HMRC wants to take away our fear?

Now I’m scared …

The new ‘Making Tax Digital’ initiative wants us all to make quarterly online digital submissions within two years, yes that’s right, ALL of us.

Jim Hara (HMRC’s newly appointed tax assurance officer) declared in a letter to the Financial Times that businesses will not be expected to file accounts five times a year, nor will HMRC be introducing in-year quarterly payments. He claims that businesses will send updates throughout the year; the information for which is automatically collated by the same software that records everyday transactions. Hara claims that this will make it harder to pay the incorrect amount of tax and takes away the need to ‘put things right’ later on.

He says that businesses with digital records should see no additional costs. As an accountant, however, I can’t help but feel that the benefits are unevenly weighted on the side of HMRC. The Revenue is, as usual, overestimating the digital organisation of the majority of UK businesses, and underestimating the costs involved in reforming company practices whilst adhering to HMRC’s protocol.

There doesn’t seem to be a tangible benefit to companies, especially so for smaller companies whose day-to-day operations will be most affected by compulsory change of this type. There is also, more so than ever, a very real risk that businesses not in-the-know will unknowingly fall foul of HMRC.

The overwhelming response from our professional accountancy bodies is that the deadline should be pushed back. HMRC are quick to declare deadlines and tell of drastic changes to come, when in reality, a ground-shaking, sudden change from paper to online isn’t necessary.

HMRC should be endeavouring to lead a measured and realistic campaign to transition tax into the technological revolution, with an emphasis on flexibility and caution. It is more important now than ever to ensure that your accountant is forward-thinking and embraces the inevitable progression taking place in the industry.

HMRC has proclaimed, with confidence, that by 2020 tax will be seamlessly digital, stressing that this will make the tax process effortless, less demanding of time and more convenient.

The only thing that seems to be a certainty right now is that businesses with finite resources are going to have to meet the HMRC’s demands. This is a daunting prospect for small business owners.

Complete exemption from the Making Tax Digital scheme has been minimised to those earning a profit of £10,000 or less. I believe that this is drastically too low, potentially causing a substantial problem for businesses and the self-employed. Interestingly enough, a survey by The Association of Accounting Technicians concluded that a more suitable threshold would be £83,000, well within the average earnings of our trade!

HMRC have forecasted to reduced its tax losses by £600mn with the scheme, and cynicism would say that therein lies the true focus of the campaign. John Cullinane of the Chartered Institute of Taxation drew light to the most disturbing aspect of Making Tax Digital. The thinly-veiled aggressiveness of these reforms threatens the attitude of voluntary compliance, which is long-established in the tax system. Voluntary compliance is not only significantly less aggressive but also effective – with 90% of tax that is due is being collected.