Making Tax Digital

If you’ve been reading any type of business website or magazine in the past few months, you will surely have seen articles and references to Making Tax Digital, the UK Government’s visionary scheme to modernise the current tax system. Announced in the March 2015 budget, the scheme encompasses four key elements; 1) more efficient use of information, 2) real time tax requests and collections, 3) a single yet comprehensive digital account and 4) digital interactions with customers and would revolutionise the current system. 

 

With over £8bn a year in tax revenue failing to be collected from business customers, largely through avoidable tax payer errors, HMRC is hoping that the Making Tax Digital scheme will significantly reduce this tax gap. A modern digital experience, with online records and 3 monthly updates should help eliminate mistakes and assist small businesses anticipate and meet their tax obligations. For individuals, the new Personal Tax Account will allow them an overall view of their tax affairs, accessible at any time from the digital medium of their choice. An ongoing ability to update their information should eradicate any confusion over what tax is owed and when, and hopefully reduce any penalties or interest that HMRC is forced to issue. With a minimum threshold of £10,000 and a maximum threshold of £83,000 for businesses and individuals within the scheme, so far it all sounds fairly simple and easy to implement. 

 

Unfortunately, as with a lot of ambitious schemes, the reality is not proving to be as clear cut as the plan. Calls to delay the April 2018 start date for the scheme have come as recently as January of this year, with ‘insufficient engagement’ with small business owners and freelancers leading to fears that the overall admin burden could force these companies into the ‘hidden economy’, when businesses essentially fail to declare sales in order to avoid paying tax. Tax experts also remain sceptical, citing HMRC’s previous track record in attempting to digitise the system while the minimum threshold of £10,000 remains contentious, with the House of Lords labelling it ‘ridiculous’. 

 

When it comes to the cost of implementing Making Tax Digital for small businesses, estimates vary quite dramatically. HMRC themselves suggest a figure of £280, whereas the FSB (Federation of Small Businesses) has estimated the cost at £2770. The blame for such dramatic difference lies firmly with the lack of transparency on just what the scheme will entail. A more detailed estimate of half a day for each filing, paid at the national minimum wage, still estimates the cost at £300 for unincorporated businesses and £600 for companies. 

 

With a year long pilot due to start for hundreds of thousands of customers in April of this year, and with plans in place for extensive testing before the full scale introduction, HMRC remain positive that the scheme is on track for delivery. However, MPs in the Treasury Committee are still calling for the scheme to be delayed, adding their criticism of ‘insufficient planning’ and the potential for ‘collateral damage’. With the head of the ICAEW calling for the scheme to be introduced on a voluntary basis, could this be the answer to help avoid any fallout from rushed implementation?