Making Tax Digital: Q&A with head of tax policy at KPMG UK

Accountancy Age speaks to Mandy Pearson, head of tax policy at KPMG UK, 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?

Digital is clearly the way forward. I don’t think removal from the Finance Bill in itself means anything and it does seem likely that the measure will be re-tabled at the earliest opportunity by the next government, but clearly the scope could change depending on the outcome of the election. Our concerns are around the timetable and whether mandating it from April 2018 is actually feasible. Anything which defers the start date would I think be welcome and hopefully allow for more by way of primary legislation rather than leaving details to be filled by statutory instruments.

Has the government carried out sufficient consultation on MTD?

I think that HMRC started the consultation process when fundamental decisions had already been made, for example that quarterly reporting would be included. As a result, most of the consultation process has been on how we are going to do this rather than what are we going to do, if that makes sense. At the same time some of the consultation has been light on the actual practicalities. Having said that, on the plus side, HMRC have made themselves very available throughout the process, have been willing to engage, and have listened and amended some of the proposals based on feedback.

We are still waiting for the consultation on corporates and more complicated businesses. As it stands at the moment, we don’t have very much detail on the VAT or corporate tax proposals. So, for corporates it’s difficult to start readying themselves which could be an issue given the time it can take to make changes to IT systems.  We are looking forward to seeing that consultation when it is released. I expect that many of the larger corporates haven’t really engaged on the topic yet and so we might see more practical issues raised as a result of this next round of consultations.

Do you think the government’s proposed timetable is realistic?

It’s going to be very tight. I think what we would prefer to see initially is voluntary adoption as opposed to mandating. There are precedents where voluntary adoption has worked well and if taxpayers can see that a service is better and is an improvement then they will voluntarily adopt it. The current concern in 10 months or so – if we stick to the current timetable – is that a lot taxpayers are going to be required to start using software to maintain digital records. As of yet we don’t know what this looks like in terms of day-to-day processes or what the software will actually do, and the software market is still developing the products. We all know from our own experience that actual implementation of software quite often doesn’t go as smoothly as you might expect, so I think the current timetable is rather optimistic.

The pilot has only just started and we will not have completed the full cycle come April 2018 so that doesn’t give any time to evaluate the pilot and assess what worked well and what didn’t work well.

Another aspect is the communications around this. A lot of the affected taxpayers are not aware that Making Tax Digital is coming in and how it could impact them. Specifically, many landlords don’t see themselves as a business, particularly individuals who have a single property, and so they may think that Making Tax Digital will not impact them. As such, we would prefer a soft launch, allowing time for the software market to develop, for taxpayers to really understand how MTD could impact them, and through voluntary adoption get greater feedback, greater evidence on how much time this will actually take and the underlying costings to business that might arise.

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

I think they look low and a lot of people have looked at them – for example the Treasury Select Committee, the House of Lords Economic Affairs Finance Bill Sub-Committee – and queried whether the estimates fully reflect the likely costs. Part of the problem with this is that it’s incredibly difficult to estimate a cost when so much remains unknown, including the cost of the software, how much extra time a business would actually spend on the initial transition, and how much it would cost on an ongoing basis to comply with Making Tax Digital.

Again this is where a large pilot would come in useful because you’d get actual costings as opposed to estimates. So, I think I would say that current estimates look low. Do I think it’s a threat to small business’ survival?  No, although it may well prompt people to take early retirement rather than transition, but I would expect most will be able to adapt.

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

I think the first step is making sure taxpayers are aware of Making Tax Digital. Without a doubt though, digital is the future and it will drive efficiency and businesses ultimately will need to adapt. There are other benefits that arise from digital record keeping such as better information and the ability to make real time business decisions. So, all in all, I expect in the longer term that it is an opportunity.

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

I think the only answer I can really give here is to speak to a professional adviser. Many businesses will have an accountant already, so that should be the first port of call. For those who don’t have access to an accountant it might be wise to seek somebody out to help through the transition. At that point, the individual business could decide whether it can manage on its own or if it needs ongoing assistance and support.

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

Most tax administrations around the globe are looking at digital, how digital can be used, and how data can transform the administration of the tax system. So we are not alone in this, and there is a great deal of sharing of initiatives. Some authorities are already close to no touch tax returns. It does make sense to use data which is already available and avoid unnecessary manual intervention which should free up business and revenue resource for other tasks. Am I convinced HMRC will be the most digitally advanced? Probably not, but I think we will be in the leading pack.

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

I hope that by 2030 we will have a much simpler tax system, and I think one of the consequences of the digital administration system is that it works best when there is a simple clear process.  It highlights areas of unnecessary complexity because it becomes very visible very quickly. By 2030, I expect that the tax system on a whole will be much more transaction based and more tax will be collected in real time, possibly through a variety of intermediaries which include digital platforms, rental agencies, card providers and financial institutions. Under this model, the collection of tax becomes more real time and ultimately tax returns will become a confirmation of what’s happened in the year as opposed to the calculation of what the tax due for the year is.

Interview by Alia Shoaib, reporter on Accountancy Age