DAVID GAUKE has publicly defended the government’s plans to make tax digital, but has been challenged by the treasury committee over the administrative costs to businesses that the plans will bring.
Andrew Tyrie, chairman of the Treasury Committee, yesterday published his correspondence with Gauke over the government’s ‘making tax digital’ plans, noting that he “finds it hard to see” how digital tax accounts will reduce the administrative cost to businesses by £400m, a point that George Osborne made in the House of Commons in January.
Gauke replied in his letter that “the proposed changes will contribute to HMRC’s target to reduce business burdens by £400m”. Tyrie also raised fears that many people won’t be able to pay their taxes online because of limited access to a computer or broadband.
Commenting on the correspondence, Tyrie said: “For the vast majority of businesses and many individuals, making tax digital may be a sensible direction of travel. But there are some – for example, those who do not currently use computers or for whom quarterly reporting would be a substantial burden – who understandably remain very concerned about these proposals.
“The government should consult widely before reaching any decisions on this. The requirement for all businesses to maintain a digital tax account needs to be tempered by provisions for those for whom this would be an unreasonable burden. Nor should an ambitious timetable be imposed at the expense of greater clarity for the millions of businesses these changes will affect.”
A number of advisers have outlined their fears over the government plans, with CIoT president Chris Jones predicting there will be problems with making tax digital.
No quarterly tax returns
Speaking at an event in Carlisle on Tuesday, Gauke reiterated plans to transform HMRC into one of the world’s most digitally advanced tax administrations.
“At the Spending Review, the chancellor announced a £1.3bn investment in HMRC to make this vision a reality. This will see the end of the annual tax return, and, in its place, will introduce simple, secure and personalised digital tax accounts for businesses and individuals.
“Importantly, taxpayers would have 24/7 access to digital accounts, as well as having a complete view of all their tax liabilities and entitlements, allowing them to send HMRC information and payments simply and efficiently.”
Gauke said that making tax digital will help reform the quality of small business record keeping, promising that the new system will contribute £920m to the exchequer in additional revenue by 2020 and £600m year-on-year thereafter.
He also addressed fears over whether taxpayers would have to submit quarterly tax returns through the digital system.
“This transformation does not – repeat, not – mean four tax returns a year.
“What it means is that by 2020, most businesses will be keeping track of their tax affairs digitally, updating HMRC at least quarterly via their digital tax account.
“Importantly, these quarterly updates will not involve the complexity of a full tax return, where the business, or their agent, has to gather together and manually input data onto an electronic or paper form, and then perform various calculations,” continued the financial secretary, who added that two million SMEs are already using digital software for their payroll and VAT.
Gauke was unapologetic over the scale of HMRC’s digital plans, arguing that the initiative is possible to implement now that the government has invested £1.7bn to bring ‘superfast’ broadband to 95% of the country by 2017.
The current business rates system is over-complex and reform is needed, but reforms should focus first of all on simplifying the appeals process, particularly for businesses which are subject to business rates exemption
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