Making Tax Digital delays – are other policies at risk?

Making Tax Digital delays – are other policies at risk?

As HMRC grapples with limited resources stemming from Brexit pressures, what does this mean for Making Tax Digital and other HMRC initiatives?

On 30 April 2018, the Public Accounts Committee held an oral evidence session on HMRC’s performance. The purpose was to discuss its reprioritisation programme, a product of pressures arising from Brexit, with HMRC identifying that exiting the EU has increased its workload by 15%.

HMRC was running 15 transformation programmes including closure of its national network of offices and relocation to 13 large regional centres, Making Tax Digital (MTD) for individuals and businesses, developing the Customs Declaration Service system, supporting the introduction of Universal Credit, and implementing the Tax-Free Childcare scheme.

In 2015, HMRC committed to transforming the tax system by 2020, which was underpinned by MTD. Under the original plans, MTD was to be in full effect for Income Tax, VAT and Corporate Tax obligations by 2020. In a notice issued on 30 April HMRC announced plans had been put on hold due to resource redeployment to deal with Brexit, acknowledging that, had they continued on their path, there would not have been the smooth transition to digital revolution that they had hoped for by 2020. They expressed that strong foundations had been laid to enable them to revisit it at a later date, and at no point should taxpayers construe this to mean MTD has been scrapped altogether.

The delay does not affect VAT registered businesses however. MTD for VAT will continue on its path with introduction from the 1 April 2019. The announcement impacts MTD for income tax and corporation tax which was scheduled to come in one year after (provided that the system had been proven to work for VAT).

The statement said: “[HMRC] continue to encourage more customers to use their personal tax accounts and will focus on improving the existing service”. It is looking more and more likely that HMRC will take a voluntary participation approach with MTD, a little like online filing of self-assessment returns. This would at least give HMRC a soft landing to ensure the number of technical issues and hiccups are limited in the introduction phase.

The announcement to delay MTD was not a huge surprise as professionals for a long time have assumed that HMRC had exceeded its capacity to take on large scale projects, and with Brexit being the goal post that could not be moved, MTD needed to.

While for individuals and businesses not registered for VAT or with turnover below the VAT registration threshold, the news will be welcome, for all others, MTD for VAT means it is “business as usual” for their quarterly digital reporting.

HMRC has stated that to the 250 change projects that underpinned the 15 transformation programmes, a further 81 had been added as a result of Brexit and two other recent fiscal events. While 11 of these projects were completed in 2017-18, 39 had stopped or slowed to create capacity for incoming projects because of Brexit.

Jon Thompson, Permanent Secretary, HMRC, told Conservative MP Lee Rowley: “For example, we have decided not to make tax credits an online service if you’re a new tax credit claimant. We had a plan to make that an online service; that project is not happening….We have decided to take a longer run at the so-called single financial account as part of Making Tax Digital for business. The primary drive, which is for VAT and Making Tax Digital for business, remains on the same timescale, but the ultimate goal, which is to provide a single financial account for you as a business, has been deferred while Ministers consider the further roll-out of Making Tax Digital for business.”

As the full scale of Brexit preparations becomes increasingly apparent, other HMRC policies and initiatives could end up on the back burner as well. HMRC has given a triple weighting to Brexit, a double weighting to receipts, and a double weighting to cost-efficiency, so that these projects are prioritised over others. Projects with lower rates of driving receipts or those with lower rates of cash efficiency are likely to be further down the list.

One of the main motivators in introducing Making Tax Digital was to assist in plugging the £34bn tax gap. Around £9.4bn of tax is lost through “mistakes” and the SME sector has been identified as a major culprit for the tax gap, representing 46% of tax lost, hence why MTD was originally intended to target smaller traders through income tax.

Deferring the MTD timetable on income tax has widely been considered the right decision, be it for different reasons than those stated above. However it does beg the question as to why HMRC is sticking to the original timetable with VAT; it will still require a shift to full digital record keeping despite a much reduced revenue benefit as the vast majority of errors arise from businesses below the VAT registration threshold.

Androulla Soteri is tax development manager at MHA MacIntyre Hudson.

Related Articles

Making Tax Digital: The importance of APIs

Making Tax Digital Making Tax Digital: The importance of APIs

2w Rob Wilcock, Product Manager, Taxfiler
Making Tax Digital can be a game-changer for all

Making Tax Digital Making Tax Digital can be a game-changer for all

2w Carl Reader, Chairman, d&t
QuickBooks releases MTD pilots and tools to make the transition easy

Making Tax Digital QuickBooks releases MTD pilots and tools to make the transition easy

3w Beth McLoughlin, Managing Editor
Digitalisation touches every aspect of our lives – let’s embrace it

Making Tax Digital Digitalisation touches every aspect of our lives – let’s embrace it

2m Alex Davis
MTD: Two thirds of practice clients still rely on spreadsheets

Making Tax Digital MTD: Two thirds of practice clients still rely on spreadsheets

2m Beth McLoughlin, Managing Editor
Should Making Tax Digital be delayed until 2022?

Making Tax Digital Should Making Tax Digital be delayed until 2022?

2m Beth McLoughlin, Managing Editor
Xero is preparing for Making Tax Digital

Making Tax Digital Xero is preparing for Making Tax Digital

2m Beth McLoughlin, Managing Editor
How unprepared are businesses for Making Tax Digital?

Making Tax Digital How unprepared are businesses for Making Tax Digital?

4m Lucy Skoulding, Reporter