Making Tax Digital: Q&A with head of taxation at ICAS

As part of a series of interviews on Making Tax Digital, Accountancy Age speaks to Philip McNeill, head of taxation at ICAS, about what the future holds for the government’s digital agenda

Making Tax Digital was removed from the Finance Bill in April ahead of the debate on the bill in the House of Commons. What does this mean for the digitalisation of tax?

The current timetable, for mandatory roll out from April 2018, looks increasingly unrealistic. Even if MTD clauses were brought back immediately after the election, we have lost the needed certainty and publicity lead-in for an effective MTD pilot. A full pilot, including the year-end finalisations, is appropriate and this would not have been possible even on the original timescale. Removal from the Finance Bill of the MTD clauses will be a benefit if it resets the clock. In an ideal world, the MTD system should speak for itself – it should not need to be mandatory.

Has the government carried out sufficient consultation on MTD?

Of more concern is, how much is the government listening? Little seems to have changed since the proposals were originally aired.

Do you believe the government’s estimated costs to be accurate? Do these costs pose a real threat to a small business’ survival?

Reliable costs estimates are almost impossible to calculate as they depend on taxpayer and business choices. There is an implicit assumption that small businesses will submit their own quarterly updates and use free software. This seems unlikely in many cases and there is a significant challenge for the smaller business. With the turnover exemption limit set at just £10,000 it seems likely that some businesses will not be viable. Sole traders could find employment becomes a more attractive option, as the regulatory burden increases.

Would you support a proposal which would see MTD first applying to businesses with the highest turnovers, and then filtering down to SMEs?

From the start, ICAS has supported an approach which started with larger businesses. This benefit of this approach has, in part, been recognised by deferring MTD for businesses with turnover under the VAT threshold.

Should businesses see MTD as an opportunity to improve their efficiency and embrace the digital world we operate in?

For businesses, MTD is really about making accounting digital more than making tax digital. The benefits and potential efficiencies of digital accounting, particularly cloud accounting, very much depend on the size, location and sector of the business. The best approach would see businesses wanting to join a system with proven advantages, rather than mandated into change.

In general, the future is digital, but with the pace of change, yesterday’s solutions are already outdated. The Fourth Revolution is already underway and brings far wider opportunities and challenges. MTD, and even cloud accounting, are only a small part of the overall technological revolution.

What can businesses with little digital experience do to adapt to the measures?

Businesses with little digital experience will benefit from expert professional business and tax advice to plan their way forward. Lack of digital experience is a business risk that can be managed, and is best faced now. Profitability is key and businesses need to be aware of the costs, challenges and advantages of digital, and devise their own roadmap to achieve success.

Do you think we’re still on track to become the most digitally advanced tax administration in the world by 2020?

The timescale has looked challenging from the start. To change the tax system so radically within a few years seems unlikely. It will take time to resolve the large number of practical issues and to change taxpayer behaviour and expectations. We are looking at a new way of doing business and many of the consequences still have to be thought through. The tax system will take time to adapt.

In your view, what does the tax system look like in 2030?

Tax will need a revolution to keep up. With the gig economy, blockchain and the “Internet of Things”, business transactions will soon bypass geographical location, timing and currency. A simplified system is needed: a real-time tax system which takes account of the different knowledge base of different taxpayers; layered legislation applying pragmatic rules to the smallest businesses, while being alive to the potential for avoidance.

Where we are going, and what it will look like, is increasingly difficult to predict. Ever increasing amounts of legislation, and the complexity of devolution, do not lend themselves to simplifying the tax system.

Interview by Alia Shoaib, reporter on Accountancy Age