Making Tax Digital: Q&A with technical tax manager at ICAEW

Accountancy Age speaks to Caroline Miskins, technical tax manager at ICAEW, 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?

Well, I think the first thing I would say is that MTD is alive and well. The removal from the Finance Bill was really just the proper democratic process in operation – it wouldn’t have been appropriate to be pushed through in the rush up. So, we expect to see it being reintroduced fairly shortly after the election. Obviously that does depend on exactly what flavour of government we get, and in particular whether the treasury team changes. Even if we end up with the same or similar government, we could have a change in the treasury team and that might cause a little bit more reflection.

It does mean that the pilot is delayed and that is unfortunate because we’ve had so many delays, and the whole consultation process in 2016 was delayed by various elections and now the pilot is being delayed. We are concerned about the pilot being squeezed.

But, it is an opportunity for HMRC to reflect on the timetable which we do think is ambitious and it should lead to proper scrutiny of the whole package, because what we have so far is only some very basic primary legislation. It would be much better if when it was going through parliament we had the whole package of primary and secondary legislation, maybe some of the guidance – a little bit of input from the pilot would make for a much better scrutiny process because we are in favour, we think this is the right thing to do but we have lots of concerns about the timetable and the speed of which it’s being done.

We have right from the outset been of the view that it shouldn’t be mandatory, but nonetheless we are where we are now and we have no reason to think it won’t happen. We just hope this might lead to better scrutiny and another think about exactly the timetable and when it would be introduced, particularly with the delays to the pilot.

Has the government carried out sufficient consultation on MTD?

Well I think the first thing I would say is that they didn’t follow the agreed consultation framework, because effectively what they did was they started the consultation at stage 2. They already had some fairly specific proposals in mind when they issued the consultation documents later than they expected, last August, and a lot of the decisions had already been made. So, they effectively skipped stage 1 of the consultation process, where they just put out some general ideas and explore possible options.

But having said that, they’ve put a very considerable amount of effort into the consultation process, and it was probably the biggest they’ve ever undertaken, so you’ve got to give them due credit for that. We are still in the situation that there’s a huge amount of details that are unknown, there are really so many questions that need answering.

I think it’s going to be absolutely crucial that they learn from the pilot. We’ve kind of had the consultation process, it’s now about learning from the pilot and hopefully amending the plans accordingly, depending on what the pilot shows. And the next thing should of course be the communication – the comms of it is a significant issue. And they have been delayed by the election as well.

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

Well, the Administrative Burdens Advisory Board (ABAB), I think they got it right. They had some correspondence issued in the public domain with the Treasury Select Committee and what they said was that without the legislation and all the detail on what is required, and without products to test that, any estimates are to some extent shooting in the dark. I think there’s huge uncertainty over this and I think all cost estimates have to be treated with a lot of circumspection. What we need now is hard data from the pilot rather than having an ongoing debate about hypothetical figures. Let’s get people into the pilot, let’s collect data on what it’s actually going to cost them and use that before the majority of businesses go in. 400,000 are due to go in 2018, but the real pinch point is in 2019 when the vast majority of businesses will have to go in.

What I would say too is another point ABAB made is they need to look at the granularity. I think that amongst small businesses they will be able to bear a cost, but I think it’s the granularity. You’ve got to remember that a lot of the people who are going to have to up their obligations to HMRC under MTD aren’t really businesses in the sense that most people would consider them. It includes landlords for example, people who have got some secondary incomes, people making some money in addition to their main source of income – almost like hobby businesses. It includes an awful lot of businesses where the individual is really in many ways more akin to an employee – they are providing their services in a personal capacity and have no employees. So, it’s looking at the granularity, looking at different sectors and how they will be impacted. There needs to be a lot more work done on that.

Would you support a proposal which would see voluntary filing for small businesses?

Well, any business is going to be able to file voluntarily but yes, we would. We absolutely support and welcome HMRC introducing good quality digital services that make life easier for businesses, and we believe if they do that, businesses will take that up because there will be a business case for doing so. We believe the mandation, particularly for smaller businesses, is not the right way to proceed. But we have at least now got the year delay for businesses under the VAT threshold which does need a little more time for things to develop.

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

I think absolutely they should. In many ways, this is making business digital, rather than making tax digital. There are all sorts of other drivers that are going along with this, and there are very significant opportunities out there. For example, the software that is going to serve tax compliance is likely to have an add-on to allow people to do forecasts, to do cashflow predictions, even linking to financing companies. I think it will allow accountants to act a bit more like an FD and give business advice to their clients rather than spending a lot of time doing compliance work.

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

The first thing they should do is speak to their adviser, assuming they’ve got one. I think if they don’t feel they’ve got sufficient digital skills I would suggest they should perhaps seek out general digital training. One of the undertakings that HMRC made when they responded to the consultations on 31 January was that they intended to make available  free general digital skills training for any adult, so maybe just get their general digital skills up and running.

I think they need to appreciate that it is coming and if they choose the line of outsourcing completely to their accountant, that’s going to be very expensive for them. They need to look at other possibilities, they need to think about actually starting to use digital accounting software themselves, or perhaps if they think their time is better spent developing their business, consider a bookkeeper to do the bookkeeping side of things. I think we are still at very early stages of the pilot, there’s fewer than 100 businesses and fewer than 10 agents in the pilot, so a lot of the products aren’t really going to be fully available until probably the Autumn. So, I think rushing into choosing a software product isn’t the right thing to do, but I think to speak to their adviser and bring their general digital skills up to date and start thinking about how they are going to try and embrace this and whether they are going to do it themselves get a bookkeeper, or just pay the money to let their accountant do it al.

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

I think 2020 is too optimistic. The current time scale I just don’t think is realistic. If you ask me about 2025, maybe. But I think one of the advantages of the election coming now is there will be a clear run up until 2022, which is probably certainly a more realistic time scale than 2020. I think it’ll probably be 2025 before businesses really start to come in. And bear in mind it’s not just Making Tax Digital for businesses, it’s also Making Tax Digital for individuals – there is a huge amount of development work going on there at a much more steady, incremental pace. But, actually some of that is quite exciting, some of the possibilities it’s giving. It’s going to give individuals access to far more information and control over their taxes then they’ve had up until now.

What do you think the tax system looks like in 2030?

In 2030, I think it will be much more integrated with accounting and much more part of how people conduct their business on a day-to-day basis, much more real time. It won’t be something that is done once a year, or maybe a little more often than that, but will be something that’s much more regular, more like checking your bank account.

 

Interview by Alia Shoaib, reporter on Accountancy Age.

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