HMRC’S LATEST digital initiative could have a profoundly negative impact on both small and large businesses, the chair of the Treasury Committee has warned.
In a published letter dated 26 April, committee leader Andrew Tyrie expressed his concerns to Treasury financial secretary David Gauke over Making Tax Digital.
The new digital tax system – which will eventually replace annual returns and will be adopted by millions of individuals and businesses – is one part of a radical overhaul that will see the taxman slash hundreds of jobs and plough £1.3bn into digitally transforming the way it administers tax.
Tyrie claims that proposals for all UK businesses to keep their quarterly record keeping in a prescribed digital format could have a severe impact on UK firms.
“This would entail the use of designated software packages. It would have an impact on large businesses (who may not currently have accounting systems which are compatible with HMRC’s requirements) as much as on small businesses, who may not use computers,” warned Tyrie.
‘Increased compliance costs’
In his letter Tyrie cited an ICAEW study which suggested that 75% of all businesses and 82% of sole traders would need to change their record keeping systems to comply with the initiative’s proposals.
“The vast majority of businesses may face increased compliance costs. This would be a cause for serious concern,” continued Tyrie.
In March Gauke was forced to publically defend Making Tax Digital after Tyrie expressed fears that digital tax accounts would not reduce the administrative cost to businesses by £400m, a point that George Osborne made in the House of Commons in January.
In the same month Gauke also had to ease fears over whether taxpayers would have to submit quarterly tax returns through the digital system, something which is not the case.
Speaking at an event in Carlisle in March, Gauke emphasised: “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.”
On behalf of the committee Tyrie is now requesting a full impact assessment of the proposals, full co-operation and consultation between parliament and those most affected by the initiative and for the Treasury to produce an acceptable plan for its gradual introduction.
Tax experts have previously warned of the potential damages that Making Tax Digital could have on taxpayers, with one critic questioning HMRC’s patchy “track record of delivering IT to the masses”.
Paul Aplin, partner at AC Mole & Sons, carries some reservations as to how Making Tax Digital will help businesses file information to HMRC.
“HMRC’s API strategy launched last September is designed to ensure that commercial software used by businesses is in fact compatible with HMRC’s systems. HMRC is therefore alive to this point. ICAEW’s concern is over whether spreadsheets – used by around half the businesses in our survey – will be accepted as meeting the requirement to keep digital records.”
The incoming ICAEW president added that “if spreadsheets do not tick the box for HMRC and businesses and landlords using them have to use apps and accounting software instead then we foresee additional burdens arising”.
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