Making Tax Digital: Q&A with tax director at Ross Martin

As part of a series of interview on Making Tax Digital, Accountancy Age speaks to Nichola Ross Martin, tax director at Ross Martin, 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?

We’re just waiting to see what happens come the general election. I assume that HRMC will be taking on board the results of this pilot. Obviously, we don’t know what HMRC has got in mind for us in terms of secondary legislation. The rumour is that the primary legislation that they set previously is going to go in unchanged, but to be perfectly honest the primary legislation didn’t tell us an awful lot anyway. The devil is in the detail, and we don’t know the detail.

But, they are also doing their pilot – it’s meant to be going over two years. There’s obviously been a lot of criticism of HMRC from MPs across parties and in the House of Commons and members of the House of Lords. The House of Lords in particular have been saying that the exemption limit of £10,000 should be raised to at least the VAT threshold. Now, whether HMRC will take that on board and whether the results of HMRC’s pilot will do anything to that, we don’t know, we’ve got to wait and see.

Part of the reason for Making Tax Digital is because HMRC has got the tax gap to address and I think they think that 15% of that is down to people not taking care, so part of Making Tax Digital is “doing a nudge”. So, if you say to people that they’ve got to do records quarterly then people might be a bit better about record keeping and we might have fewer careless errors. Then there’s obviously just innocent errors, which happen. Apparently it’s going to stop those, but I’m not fully sure how.

Part of the tax gap is surely undeclared income, so I can’t see how MTD is going to make that any better, as the people who don’t declare their income will still not declare their income.

Has the government carried out sufficient consultation on MTD?

No, not on the effects of it. I think that there’s a real problem about small businesses and how they’re going to actually start bookkeeping four times a year. It’s a lot. It’s a big administrative burden.

Do you believe the government’s estimated costs to be accurate?

No, wildly inaccurate. I think they say about £280 a year. I mean, the costs are massive and just in terms of  – I’m looking at it from an accountant’s point of view – about how long it will take to advise your client on it, you’re going to probably need at least three or fours hours per client to help them, tell them their obligations, and then you’ve got to get people using software who have never used software. It’s mad.

Do you think the timeframe the government has laid out is realistic?

No, I think it’s just too quick.

I think they’re good on doing a pilot, but I think maybe VAT registered businesses might be able to cope with it because most of them are already filing VAT returns online. The problem is they’re not filing VAT returns using their own software. So they can probably upload transactions online using whatever the software they’ve got. Whether those transactions will be any good is another matter. They might be good for HMRC to analyse data, but certainly what we know already is obviously you can’t do a VAT return using most software, because if you’re operating on  part of an exemption scheme for example, your software won’t work for you.

So, I don’t know how they’re going to do Making Tax Digital for VAT by 2019. I’m in a group with HMRC, and a lot of companies are saying: “we can’t do it, we need four years to develop”. So that’s really interesting.

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

Yes, I think that would be really good.

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

No, I don’t actually. I think it’s been badly thought out and it’s hideously wrong.

There’s a big issue with VAT. Making Tax Digital for VAT is coming in 2019. But, currently, about less than 8% of VAT registered businesses already use software to file, so most software can’t actually cope with VAT filing. So, there’s a real issue – if software can’t actually cope with VAT filing then how is software supposed to cope with all the MTD filing?

I don’t think it’ll be efficient for anybody. My favourite expression is Richard Branson never got to the top of Virgin by doing his own bookkeeping. So, why do we try to make all these small businesses into bookkeepers? It’s not good for the economy.

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

Well, it’s a real issue. Because if you haven’t got digital experience and you’re not digitally engaged, the question is, will you ever be? Will you ever be a bookkeeper if you were not that way inclined?

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

No. No way. Absolutely not.

What do you think the main obstacles are?

At the moment, judging by talking to some of the software people around here [Accountex], I don’t think that actually the software houses have got products already. The market really hasn’t caught up with it all. There should already be people going, “yes, we’ve got spreadsheet products for MTD”. As far as I can see nobody has got spreadsheet products for MTD and that’s a really basic thing… Why is nobody doing that? Because nobody is thinking like that. HRMC is just connecting together its systems but at the moment, if you’re an accountant, you can’t phone up for what’s called a P60, which is a summary of an employee’s wages for the year.

There’s a lot of stuff we can’t do that we should be able to. HMRC should be able to give us all this stuff and it can’t do it for some reason. And it’s not engaging with agents. Basically, HMRC is going at it from the taxpayer’s perspective but forgetting that agents are there to actually help smooth along the process. So, yes, I don’t think it’s looking very good. I think it’s going to come crumbling down, particularly in relation to VAT.

 

Interview by Alia Shoaib, reporter on Accountancy Age.

Related reading