Making Tax Digital, not easier

The Treasury Select Committee (“TSC”) published their report in January 2017 on the Making Tax Digital (“MTD”) proposals put forward by the government.  This was done before the government itself had responded to the consultation feedback it had received.  Perhaps one of the more telling statements made in the report was “’Making Tax Easier’ becomes ‘Making Tax Digital’, and concerns mount”, a reference to a change in the name of the initiative at an early stage in its evolution.

Whilst joining many of the respondents in supporting the broad aims of the Making Tax Digital initiative, the TSC drew a number of conclusions:

  1. Deferring the proposed implementation date of April 2018 was almost inevitable, which it described as “wholly unrealistic” – particularly in the absence of many other details which are covered by the points below, but also the level of taxpayer education that will be required to meet such a fundamental change.
  2. The end to end process needs an adequate pilot scheme before full implementation, including the role of tax agents.  This pilot should be extensive enough to provide evidence of the costs and benefits of MTD, and should also provide protection for those taking part (for example exempting them from current tax filing requirements at the same time).
  3. Mandating the requirements of MTD for all businesses with turnover of £10,000 or more is setting that threshold too low, and will capture many businesses who pay no tax at all.  Whilst consultation responses provided no consensus on what the correct threshold might be, the TSC view was the VAT registration threshold (currently £83,000) represented a figure that was at the very least a minimum level.
  4. Mandating the requirements of Making Tax Digital at all was at the outset of its implementation a questionable objective – if the business benefits were as obvious as the government proposals suggested, then the TSC argued than mandating MTD would be unnecessary.  Some form of phased approach might be more appropriate.
  5. The government needs to make it clearer who is exempt from the requirements of MTD – statements such as “those for whom it is not ‘reasonably practical'” (to engage digitally) are far too vague to be of use.
  6. That the cost/benefit case needed further evaluation (to ensure the true costs were not being under-stated as many consultation responses had suggested) and evidence (particularly where it comes to assumptions around increased tax revenues from the reduction of errors in returns as a result of MTD).
  7. Software should be available free of charge to those that need it, and that it should remain free and be of sufficiently robust nature, and not full of marketing messages for paid-for versions to the extent that it becomes disruptive to use.  Software should be capable of taking feeds from spreadsheets.
  8. Government must engage in an intensive publicity campaign once the details on the above points are clear.
  9. Cyber-security needs to be carefully considered, as do the obligations for software vendors to ensure data is adequately backed up.

Above all, the TSC noted that the government had yet to respond to the consultation feedback received on Making Tax Digital.  The delays in response are actually welcome as they appear to suggest government is listening.  The TSC makes it clear that it awaits a more detailed understanding of the government’s position on a number of areas of MTD, and that once these are better understood it will seek further evidence of its own.

The coming months will tell us all a lot more about what this initiative will end up looking like.

If you would like to understand more about Making Tax Digital, or your tax filing obligations more generally, then please contact us and we would be more than happy to help.  Any initial discussion will be free of charge and will no obligation.