As part of a series of interviews on Making Tax Digital, Accountancy Age speaks to Brian Palmer, AAT tax policy adviser, about the digitalisation of the UK tax system
As part of a series of interviews on Making Tax Digital, Accountancy Age speaks to Brian Palmer, AAT tax policy adviser, about the digitalisation of the UK tax system.
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?
Fundamentally, as far as HMRC can see, everything is already business as usual, they’ve carried on exactly as it was. So, it goes down really to what happens with the elections. If the same government comes back then I think there will be a Finance Bill number three very shortly afterwards, and pretty much everything that was in the previous Finance Bill will go back in again. If the same government comes back with a lower or lesser majority then a watered down version will come back, and that may not come back until after the Autumn Budget. And, if a different government comes in altogether then everything is up for grabs.
So, whatever happens, MTD in some shape or form will happen – not necessarily the same format and on the same timescale. But that’s only applicable if a different government comes in.
Has the government carried out sufficient consultation on MTD?
I think it did a huge amount of consultation. The problem it had was that consultation was held up for six months last year while we went through the budget purdah, then the local elections purdah that was in May, then the purdah that was imposed because of the European Union. Then the referendum vote coming out held it up even longer so they couldn’t get out and consult properly until August.
They consulted very thoroughly on the smaller business end and the administration side. Where they haven’t consulted yet, and now it’s now being held up because of the election, is on the larger businesses – companies and complex partnerships. Complex partnerships are the ones with turnover of more than £10m, and they’re yet to consult on that. But they’re not due to come on board until 2020 at the earliest.
So, consultation has been wide. They’ve listened. Have they accepted all the recommendations being made? No, but you wouldn’t expect them to.
The issue now is not consultation but about awareness. The comms that would have been going out now to make people aware can’t go until after the election, and then obviously we need to know how the government comes back and everything else because the first onboarding is starting from the beginning of the next tax year, so the comms are needed to make them aware. Agents are becoming much more aware, AAT and other organisations are doing a lot to make sure that their members are aware, and therefore they’re going out and telling their clients. So, those who don’t have agents would be a bit more in the dark. They’re probably the ones below the £85,000 turnover so they won’t be required to start onboarding until April 2019, so it gives more time for them.
Do you believe the government’s estimated costs to be accurate? Do these costs pose a real threat to a small business’ survival?
I don’t think they’re far out. I mean, there are better costs in one or two of the other ones who chalked it out, by other interest groups. In terms of do they pose a real threat to small businesses, they will present a challenge, but I don’t think they should put small businesses out of business, unless they really don’t want to move to the digital age. Bearing in mind the government’s help with broadband funding for rural economies, there’s a roll out with that that will help. There is also a removal from the requirement to be mandated if people are not physically able because of remoteness, because of accessibility issues.
Would you support a proposal which would see MTD first applying to businesses with the highest turnovers, and then filtering down to SMEs?
Yes, we have some sympathy with one of the reasons that MTD has been designed, which was to close the tax gap, because the tax gap in the UK is £36bn, and that’s an estimated figure calculated consistently year on year by HMRC.
Half of that is in the SME area of about £18bn and, of that, half of that is down to the sorts of errors and mistakes in record keeping – about £8bn – and that is in smaller businesses. The smallest businesses would benefit from MTD because the idea being you keep records more or less in real time, so therefore they are likely to be more accurate.
HMRC believes they can close the tax gap considerably by starting with smaller businesses first. What we said when in consultations was don’t bring in the smallest businesses first, bring in those above the VAT threshold. Whether they’re VAT registered or not is irrelevant, but if turnover is above £85,000. So, what we were saying there was that those sized businesses should be more capable of adapting earlier on. So, first year bring those in. Then we said you should bring in a sliding scale from there, so next year you bring in say from £85,000 to £50,000, then the following year £50,000 to £25,000, and in the fourth year you’d have £25,000 to personal allowances. So, we were keen to say bring in the larger of the SME market first.
Should businesses see MTD as an opportunity to improve their efficiency and embrace the digital world we operate in?
Yes, I think it is an opportunity for businesses and I think it’s an opportunity for advisers. By using MTD compliant client based software, it gives people a huge amount of reporting and data processing power at the touch of a button, so they can see much more readily in real time how their business is performing. A lot of agents work in compliance driven environments where after the end of the tax year the client comes in and gives them a bag full of records, or some probably don’t get them until three to four months after the end of the year. The accountants then produce accounts, tax returns, sit in front of the client say six months or so after the end of the year and they tell them about what their business has done. And this information in front of the business owners is not very meaningful because they’ve lived the experience, they already know what they need to know, so MTD will move information into more or less real time, so they can see at the end of the quarter how a business is performing and be able to respond in the year to changes and challenges.
What can businesses with little digital experience do to adapt to the measures?
Well, the first one would be to start looking at going digital early, so that they get a chance to adapt to it in a more measured way. They could also consider concentrating on what they’re best at – that’s essentially operating their business and thinking about engaging a self-employed bookkeeper or accounting technician or someone to do the menial work for them so they can do what they’re good at and the people doing the book-keeping and accountancy can do what they’re good at. If they specialise, they might benefit more.
Do you think we’re still on track to become the most digitally advanced tax administration in the world by 2020?
I think we’re well on the way, but I mean we haven’t actually seen any of Making Tax Digital really, aside from a few pilots. So, the intention is there. I think realistically it was always going to be the end of 2020-21 before that was going to happen because the last – biggest limited companies and the partnerships with turnover more than £10m – are not meant to onboard into Making Tax Digital until after April 2020. So, I think it’s a very, very laudable aspiration. I believe HMRC will get there. It might take them until 2021 and beyond. We’ll get there – I think it’s totally the right thing – when you look at people with banking, you get a vastly more satisfactory experience using a banking app or online banking then you do in any other way of doing it, so it’s just moving tax into the same context.
In your view, what does the tax system look like in 2030?
Well, I think even earlier than that – by 2025 – anyone coming in to the tax system will not believe that what they see has not been in place for half a generation or so before. It will be being able to access a personal or business tax account via an app on your mobile phone or tablet. I think a lot of the information will travel from the cradle to the grave with little human intervention. Now, what do I mean by that? I mean that if you make a purchase then the invoice will be stored straight in your own system without any intervention from a human.
So, accountants and technicians will be specialising a lot more on the added value information side, on looking at the figures and what they say and what can be done to make a business more profitable, or taking advantage of changes in trends. So, more advising on the business rather than on the tax side.
Interview by Alia Shoaib, reporter on Accountancy Age