Making Tax Digital: HMRC movement welcome but timetable remains daunting

The Chartered Institute of Taxation (CIOT) has welcomed today’s announcement by HMRC that businesses will be able to continue to use spreadsheets for record keeping under the new quarterly reporting regime, and confirmation that no penalties will be levied for late submissions in the new regime’s first year.

However the CIOT is warning that today’s announcements, made in HMRC’s response to the six ‘Making Tax Digital’ consultations which ran last year, make the case for delaying the introduction of the new regime even stronger.

The Institute has also noted that an increase in the time allowed for submitting an ‘end of year declaration’ from 9 months after the end of a business’s accounting period to 10 months after will mean that, for the many businesses with a 31st March year end, the 31st January deadline will remain in place.

CIOT President Bill Dodwell said:

“Businesses and tax professionals across the UK will be poring over today’s announcements to see what they mean for them and their clients and customers. The fact that there were more than 3,000 submissions to these consultations shows the level of concern about the proposals and the impact they will have.

“The good news is that the Government has clearly listened to some of the concerns expressed by respondents. The ‘soft landing’ on penalties for late submissions is a sensible proposal. An exemption for charities and a deferral for large partnerships are both pragmatic moves. The announcement that businesses will be able to continue to use spreadsheets for record keeping is positive, though we note the statement that this ‘is likely to involve combining the spreadsheet with software’. The devil will be in the detail!

“However today’s announcements highlight how much is still to be settled. On both the exemption threshold1 and deferring the changes for small businesses the Government are still thinking. Put alongside the truncated timetable for consultation on the draft legislation (just three and a half weeks), and the fact that most of the draft legislation has not yet been published, as well as the launch of two new consultations on aspects of the proposals, this strongly suggests that the whole Making Tax Digital project should be delayed by at least a year. Getting this done quickly is less important than getting it done right!

“On the face of it the announcement of a broader pilot for the project is a very positive move, and we certainly welcome it. We argued in our submissions for extensive pilots, covering the whole reporting cycle and address behavioural issues as well as digital functioning. However, if pilots are planned to start from April 2017, Making Tax Digital will already be live before the pilot has finished a full reporting cycle, given that the end of year return for 2017-18 might not be due until the end of January 2019. So once again this is an argument for delaying the new regime’s start date beyond the intended April 2018.

“Additionally the promised software isn’t yet available for anyone to see its capabilities, or know how many providers of free software will actually deliver in the envisaged timeframe.  There is also no ability yet for agent access. All of these things make the case for delay even stronger.

“Finally, we are extremely surprised by HMRC’s claim that there will be ‘small ongoing annual savings’ for business from the proposals. Our survey of members, which had over 1,000 responses, suggests that there will be no ongoing cost saving for business, as many small businesses will need to engage their tax advisers four or five times a year rather than annually, with associated costs. Our expectation is that, even looking past the roughly £1 billion of one-off transitional costs for business which HMRC acknowledge, the ongoing administrative costs for business will outweigh the savings.

“Moving the UK to a digital tax system will undoubtedly bring benefits but the scale of the change is so significant that it would benefit from being carefully phased in. A phased introduction would give small and medium-size businesses sufficient time to prepare for the significant administrative, technological and financial implications associated with the shift to digital accounting.  It would also help software providers ensure their products are ready in time, with adequate time for testing – something we continue to be concerned about.”

Notes for editors

1.       The CIOT has suggested that HMRC substantially raise the short-term mandation threshold from the proposed £10,000, with a consensus forming around VAT threshold of £83,000.

2.       The CIOT supported many of the suggestions in a report from the House of Commons Treasury Committee which called for a delay in the implementation of Making Tax Digital project and for more extensive piloting of the reforms. It also said that the proposed exemption threshold of £10,000 is far too low. More here.

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. Link here.

4.       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.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702
(Out of hours contact: George Crozier, 07740 477 374)