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Making tax digital – why are we going down this road?

Calculator and coins

Michael Steed, ATT President and one of Kaplan’s tax experts, ponders how we came to be here and where it’s all going to go.

In the spring Budget 2015, George Osborne heralded the vision for a digitally transformed tax system and the end of the annual tax return.

In September 2015, the Treasury published a document called: “Making tax easier” and this announced the introduction of digital accounts for millions of individuals and small businesses. The document claimed that taxpayers will be able to: “understand quickly and easily what they need to pay – without ever having to complete a tax return again”.

The document went on: “This is a big leap forward in modernising our tax system, putting good customer service at its heart, and making it as easy as possible for individuals and businesses to pay the right tax at the right time”.

Then in December 2015, a more detailed document covering the same ground, called “Making tax digital” was published. Note the change of language – the headline reference to the concept of being easier had been dropped!

OK, I buy into the concept that we are in the midst of a digital revolution and there’s no reason why we shouldn’t bring tax into line with that.

But it’s not just making the digital platform more central to the tax system – there’s something else going on and I’ve got a sense of what this is by talking to HMRC and the Treasury in my roles of the ATT President.

Ministers are worried about the so-called tax gap. This is the difference between what HMRC actually collects and what they think should be collected. It’s about £34bn based on the most recent figures (for the 13/14 year).

If you look at the figures carefully, quite a bit of that is down to SMEs (about £16.5bn) and individuals (about £2.9bn) and the taxes at stake are primarily IT, NICs and CGT (about £14bn) and VAT (about £13.1bn).

So here’s the dilemma for ministers. They are politically committed to making tax and burdens on small businesses easier, but they need to introduce extra measures to attempt to close the gap.

And HMRC has been given that task.

If you look at the December 2015 “Making tax digital” document, it says:

“HMRC will collect and process information affecting tax in as close to real time as possible to stop tax due or repayments owed from building up. From April 2018, businesses including everyone who is self-employed and those letting out property, will update HMRC at least quarterly, where it is their main source of income (or a secondary source of income above £10,000 and their main source of income is from employment or a pension)”

And this is the bit that I don’t get. If the Government wants to make tax easier by removing the need for an annual tax return, how is that achieved by making small businesses and individuals report at least quarterly?

The only explanation in my simple head is that under pressure to close the tax gap, quarterly reporting appears to be part of the way home for them.

I don’t think that either HMRC or the Treasury know what reporting quarterly will actually look like. When they have a better idea, no doubt they will share it with us. And both the AAT and the ATT is helping them shape that vision.

And the bit that’s missing in my head is not quarterly reporting, it’s quarterly payment. This is the bit that will bind it all together and help close that tax gap. One without the other doesn’t add up for me.

But let’s hope that digital accounts work better than access to HMRC’s online services on 9th January this year, right in the middle of the tax return month from hell, when hundreds of agents couldn’t get onto HMRC’s online services through the front page of the HMRC website: “HMRC services – sign in or register”. It had been changed to deny agents access without notice; and was then compounded when the HMRC online services helpdesk said that they had not been told of the changes and were having to deal with a flood of complaints. Yes, it got fixed over the next few days, but this is the sort of service delivery that lets HMRC down.

So here’s my message to HMRC : get your basic house in order before you go careering down the pathway of another round of change.

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