Survey results contradict government claims of realising benefits of digital tax reporting

Survey results contradict government claims of realising benefits of digital tax reporting

  • Nearly 90 per cent of respondents say that MTD for VAT has not reduced errors
  • The costs of MTD compliance have far exceeded government estimates
  • Just 14 per cent of respondents say there has been an increase in productivity in their organisation as a result of MTD for VAT

Results of a survey conducted by the CIOT and ATT about Making Tax Digital (MTD) strengthens the tax bodies’ shared view that the MTD project is far from achieving its goals. The survey results have led the two organisations to call jointly for a comprehensive review of the roll out of MTD for VAT before HMRC goes ahead with plans to roll out digital reporting obligations more widely.

Since April 2019, most VAT-registered businesses with a taxable turnover above the VAT threshold have been required to follow the MTD rules to keep records digitally and use software to submit their VAT Returns to HMRC. The Government announced in March 2019 that it would focus on supporting businesses to transition to MTD for VAT and that MTD will not be mandated for any other taxes or businesses in 2020 (no new launch date has been set as yet).

The Government promotes MTD as part of its plans to ‘make it easier for individuals and businesses to get their tax right and keep on top of their affairs’, while also claiming MTD will reduce the tax gap by minimising avoidable errors.1 But the results of a detailed joint CIOT and ATT survey held during December 2019 and January 2020 pose a challenge to any complacency over the extent to which these benefits are being realised.

The online survey was open to businesses and agents with an interest in MTD. The questions explored opinions about the implementation of MTD for VAT and the future of the whole MTD programme. There were a total of 1,091 responses to the survey. The survey found that the costs of complying with MTD for VAT have so far been significantly above HMRC estimates, and that generally it is not reducing mistakes.

Tina Riches, Chair of the joint CIOT and ATT Digitalisation and Agent Services Committee, said:

“These initial results underline our concerns that, far from bringing benefits to businesses and the Exchequer, MTD for VAT has so far created additional, costly obligations for most businesses beyond what was predicted by HMRC. The results suggest there is a very long way to go to achieve the benefits claimed by the Government about MTD for VAT. The Government should undertake a detailed review of MTD for VAT, and determine any benefits, before rolling out MTD more widely.

“Appropriate software can, when used properly and in accordance with a business’s needs, deliver significant benefits. But our survey demonstrates that MTD is not currently delivering those benefits to businesses, nor likely to reduce the tax gap. A thorough review and further consultation is needed before extending its scope.”

More than 70 per cent of respondents2 consider that MTD for VAT has had little impact on errors made by their clients, with the majority of remaining responses reporting an increase in errors rather than a reduction.

The costs of MTD compliance have far exceeded government estimates, according to respondents. While the average transition cost was estimated by HMRC to be just £109 per VAT–registered business, less than 10 per cent of respondents estimated their or their clients’ costs at or below that amount, with 45 per cent of respondents estimating costs between £109 and £500 – with some 12 per cent estimating costs over £5,000.

Just eight per cent of respondents estimated ongoing MTD for VAT compliance costs at or below the Government’s estimate of £43 a year, with 54 per cent of respondents estimating costs of between £43 and £500, and 20 per cent estimating costs of between £500 and £1,000. Those working in-house for larger businesses reported the highest costs; 46 per cent reporting transition costs above £5,000 and 29 per cent reporting ongoing costs over that amount.

Many businesses sought help from their agent in order to meet the requirements of MTD, with 56 per cent of agents reporting that over three-quarters of their clients required help with the move to digital record keeping, and 36 per cent and 48 per cent respectively reporting that over three-quarters of their clients need ongoing help with keeping digital records and filing their VAT returns. Agents have also borne significant costs in helping their clients become compliant. More than 70 per cent of agents who responded to the question reported unrecoverable time and costs of over £100 for each client within the scope of MTD for VAT. This percentage reduces slightly, but only to 44 per cent, when looking at similar costs on an ongoing basis.

Just 14 per cent of respondents stated there had been an increase in productivity in their organisation as a result of MTD for VAT, reducing to 13 per cent for their clients. A total of 55 per cent considered there had been a decrease in productivity in their organisation, and 51 per cent for their clients.

Tina Riches said:

“The commitment of agents to help their clients comply with the new rules is commendable, and we are pleased to see that this has already been recognised by HMRC.3 But this level of costs borne by agents is both unacceptable and unsustainable. A truncated pilot, issues with the Agent Services Account, and dealing with large numbers of teething problems are key contributors to this, as well as limits to the support that clients are willing and able to pay for.”

If the Government decides to roll out MTD beyond its existing scope, 49 per cent of respondents who expressed a view thought that the next step should be to extend MTD for VAT to voluntarily VAT-registered businesses, with 40 per cent considering MTD should next be extended to corporation tax for businesses who are already in the scope of MTD for VAT. A total of 74 per cent of respondents thought that income tax for non-VAT registered individuals was the last area that should be brought into MTD. April 20254 was also the most popular date from which any further compulsory extension of MTD should take effect, and a minimum two-year pilot was preferred.

Tina Riches said:

“It is no surprise that mandating MTD for income tax next is the least favoured option. As we anticipated, the roll out of MTD for VAT has proven more difficult than the Government expected. MTD for income tax would encompass a significantly greater number of taxpayers, many of whom will be less digitally capable than VAT registered businesses, and would be much more complex. Taxpayers will require significant training and ongoing support, and we are concerned that their agents, the tax charities and HMRC, simply will not be able to cope.”

Notes for editors

Percentages are calculated based on the number of responses to that particular question, after removing any ‘don’t know / not applicable’ responses.

Note that this was the latest date provided for in the survey, and so some respondents may have chosen a later date if one had been provided.

The survey results are on both the CIOT website and ATT website.

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 19,000 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 9000 members and Fellows together with over 5,000 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702

Out of hours contact: George Crozier, 07740 477 374)