What Progress has been made with ‘Making Tax Digital’?
We last reported on the Government’s plans for “Making Tax Digital” in December. This will apparently revolutionise the way in which our tax affairs are reported. Everyone will have access to a “Personal Tax Account”, and anyone with property income or self-employment income over £10,000 having a “Business Tax Account”.
Delayed by Politics?
Since our last article, there have been few developments, due to the Government dealing with the build up and subsequent fallout of the EU Referendum. Making Tax Digital was widely regarded as being one of George Osborne’s flagship policies for his previously likely 2020 campaign to become Prime Minister. As a result of Brexit however, he is no longer at the exchequer and his dream of being PM looks in tatters. It remains to be seen if his replacement at The Treasury, Phillip Hammond, will share Mr. Osborne’s enthusiasm for getting the project completed by 2020. Despite the politics, some further updates have been added to their website, with illustrative case studies added and a video showing how HMRC see digitalisation in practice for a sole trader with simple tax affairs.
Making Tax Digital Video Guide from HMRC
The video demonstrates how “John”, who currently doesn’t use any tax software and “finds it a chore to pull his records together at the end of the tax year”, will be able to use an app on his smart phone to take photos of all his paper invoices, and add details of cash expenses, along with his sales, as they happen. The app will record the details and then at the end of the quarter prompt John to check the information, before confirming the data and submitting to update his tax account at HMRC.
Clearly, this is only suitable in very simple cases, and it is hard to see how this system could be used to deal with a reasonable sized business with a higher frequency of transactions on a daily basis. It also does nothing to address how the usual end of year adjustments, such as adjusting for creditors and debtors, and closing stock, would be dealt with.
A Further Debate?
The Government will also be required to debate the policy in January in the Houses of Parliament, as a petition set up received over 110,000 signatures. This prompted them to issue a fact sheet “myth buster”, which stated that this will not mean that they will require the completion of four tax returns per year, instead of one.
The Federation of Small Businesses has lobbied the Government requesting simplification to the information required from businesses on a quarterly basis, recognising that to provide full accounts information every quarter will be an onerous task for small businesses.
Detail is also required on how software systems currently used by businesses will fit with the proposed online disclosure to HMRC.
What do taxpayers think about making tax digital?
HMRC also published the results of their research in January, although this research was conducted in February and March 2015, so you wonder how relevant this can be. They apparently discovered that the majority of taxpayers were in favour of increased digitalisation, with the promise of information being more readily available, and no longer being required to provide information that HMRC already has access to.
The research distinguishes between the ‘easy wins’, persuadable middle ground, and digital rejecters. They found that agents and individuals already in self-assessment were more likely to fall into the first category, with taxpayers falling into the assisted digital group and those within PAYE more likely to be difficult to integrate into the digitalisation programme. It is these making tax digital rejecters that will be targeted most with traditional advertising campaigns, perhaps meaning that less detailed information will be provided for businesses on how the new system will operate.
A faster system?
It is also clear from the published information that HMRC is intending to reduce the time between the income source being received and the time at which the tax is collected. All the case studies published show the individuals being in favour of paying the tax in regular instalments. This would enable them to budget and manage their tax liabilities, which is clearly a biased view and one wonders how long it will be before the option to pay earlier will become a requirement.
A formal consultation was expected immediately following the EU Referendum, but this has now been put on hold until the end of the year, so watch this space! For further information please don’t hesitate to contact our expert team of tax consultants.