A critical report that calls for a far more cautious approach by the Government to the roll-out of Making Tax Digital and a delay to the scheme from the planned 2018 to 2020, has been welcomed by the Association of Taxation Technicians (ATT), the Chartered Institute of Taxation (CIOT) and the Low Incomes Tax Reform Group (LITRG).
The report, ‘The Draft Finance Bill 2017: Making Tax Digital for Business’ has been published today by the House of Lords Select Committee on Economic Affairs, Finance Bill Sub-Committee.1 In it, the Lords conclude that the roll-out of the scheme is being rushed, imposing unnecessary burdens on small businesses and landlords, and will yield little benefit to the Government. The call for a delay to the scheme until 2020 to allow for a full pilot chimes with the tax bodies’ calls for the Government to move at a more judicious pace on the compulsory requirements of Making Tax Digital (MTD).
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“The report should give the Government the impetus to tap on the brakes on this juggernaut, to allow more time for full end-to-end testing, piloting and evaluation to avoid unnecessary logistical and financial risks for both HMRC and businesses.
“We support concerns in the report that the Government's estimate of the 'tax gap' savings are fragile and not based on ‘adequate evidence’. Similarly, we are highly sceptical of HMRC’s assertion that the scheme will initially cost businesses on average just £280, a figure that does not reflect the reality of the initial expenses businesses will incur.
“We welcome the committee highlighting that the difference between the rules for choosing to apply the cash basis to trading income and to property income, is a potential source of confusion and error for many businesses, especially those with income from both sources.”2
Adrian Rudd, Chairman of the Joint CIOT and ATT Digitalisation and Agent Strategy Group, said:
“We welcome the committee’s recognition of the unprecedented technological and logistical challenges which will be faced by the many small businesses and landlords which are not currently maintaining digital records or interacting with HMRC on a frequent basis.
“The timetable for MTD remains extremely challenging and a delay would enable the diverse nature of businesses affected to be addressed and a little more consideration of how their tax agents and accountants can support them. A full pilot would ensure the software is ready and works.”
Anthony Thomas, Chairman of LITRG, said:
“Like the committee, LITRG believes that a digital programme, implemented with care and sufficient regard for the needs of the taxpayer, can greatly improve the administration of tax.
“We welcome the Chancellor’s Budget announcement that businesses with a turnover below the VAT limit will have an extra year before being required to keep digital records and report to HMRC each quarter, but agree with the committee that this does not go far enough; the digital programme should be optional for businesses below the VAT threshold, for people will naturally gravitate towards systems that are good, intuitive and easily navigable, without the need for compulsion.
“We also concur with the committee’s recommendation that HMRC urgently assess and make public how it intends to support the digitally assisted population, and business owners with disabilities that require the use of assistive technology.”
Notes for editors
1. The Finance Bill Sub-Committee’s Draft Finance Bill 2017: Making Tax Digital for Business can be read here.
The Sub-Committee recommends a series of modifications to ensure the policy is implemented successfully:
· The Government's estimate of the 'tax gap' savings are fragile and not based on adequate evidence. The assertion that the scheme will initially cost businesses £280 does not reflect the reality of the initial expenses businesses will incur.
· Delay the scheme until 2020 to allow a full pilot. This delay will allow the Government to test whether Making Tax Digital does reduce taxpayer errors, assess the actual costs to business, and receive valuable feedback from business users. It also gives the Government time to raise awareness and put in place support systems for those who lack digital skills.
· Make keeping digital records and quarterly reporting optional for businesses with a turnover below the VAT threshold. For smaller businesses the requirement to report quarterly to HMRC will impose an unnecessary burden, and will be of limited use.
· Look again at which businesses are included in the scheme. The Government should examine whether some kinds of businesses, such as those with seasonal or highly irregular income, should be outside the scheme.
2. Based on the draft legislation published on 31 January, businesses will have to opt out of the property cash basis (i.e. the cash basis will be the default basis of accounting), whereas businesses currently have to opt in to the trading cash basis (i.e. Generally Accepted Accounting Principles – GAAP - is the default basis).
3. The results of a survey of members of the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) in 2016 strengthened the two bodies’ concern that the timescale for implementing compulsory digital record keeping is unrealistic and must be delayed. The survey found that 89 per cent of members believed that the timeframe for implementing quarterly reporting should be extended to help businesses. Link here.
4. Making Tax Digital is a key part of the Government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs - meaning the end of the annual tax return for millions. At Spring Budget 2017 the Government announced that it would provide 3.1 million small businesses with an extra year (until 2019) before they are required to keep digital records and send HMRC quarterly updates. Read more here.
5. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
The Association of Taxation Technicians
The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.
Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia.
The Association has over 8,000 members and Fellows together with over 5,600 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.
Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)More Articles by Chartered Institute of Taxation (CIOT) ...