HMRC has only fully tested 23 software products compatible with Making Tax Digital (MTD) due to delays in rolling out the full trial and there is still widespread lack of awareness of the programme, Lords warn
Speaking at a Lords hearing on Making Tax Digital, Baroness Noakes highlighted the resistance from accountants and small businesses to Making Tax Digital for VAT and lack of readiness for the mandatory programme, which goes fully live in April 2019.
Theresa Middleton, HMRC director for Making Tax Digital for business, defended the process of submitting data to HMRC as reducing both arithmetical errors and transposition errors, but admitted that there was significant resistance to the programme: ‘I think it is fair to say there has been a mixed enthusiasm among accountants who represent small businesses for encouraging their clients who use spreadsheet to move to software. There is a sense on the part of some firms that they are reluctant to encourage their members to move down that road at all.’
Middleton said that the process had been staggered in order to give the maximum number of businesses access to MTD as soon as possible: ‘The half million who can join now are those that have the most straightforward affairs and are up to date. Over the coming months we are going to be adding additional functionality.’
‘There are 23 software products which we have tested fully…We expect that there will be many tens more products ready by April. That gives us confidence that there will be a variety of products with different price brackets.’
Lord Forsyth asked Ruth Stanier, HMRC director general for customer strategy and tax design, why some trusts, local authorities and charities were allowed a six-month deferral when small and medium-sized enterprises (SMEs) were not.
Stanier replied that HMRC had carried out a ‘comprehensive analysis’ of UK businesses and found a minority who required additional support in the transition. HMRC had identified ‘a very small group with the most complex requirements in terms of the functionality we need to deliver, but also those with the smallest amount of yield at stake’. She admitted that the decision to provide the deferral to only a limited number of businesses was based on a desire to ‘minimise the amount of yield to lose’, which was ‘negligible’.
The House of Lords economic affairs finance bill sub-committee has previously heard from tax experts and business representatives who have expressed concerns about the way that the programme has been implemented and communication between HMRC and small businesses. Lord Lee said: ‘The evidence we have had is absolutely overwhelming in that there is huge under-preparedness. The firm impression we have at the moment is that we are heading for a giant car crash.’
Baroness Kramer noted the disconnect between MTD and small businesses: ‘It appears there is one conversation between HMRC and the software companies, for whom this is all their Christmases come together, and on the other side people who actually work with small businesses.’ She was particularly critical of the way that MTD had been rolled out: ‘So far all that has been piloted is the simplest of arrangements, and so there is a great of complexity particularly from the software angle which has not been piloted. Yet you expect very small businesses to manage this in a matter of 6 months.’
Baroness Noakes concurred, saying that with regards to VAT she ‘could not understand how making it digital will help at all.’
‘It has been put to us that all you have required people to put things on a particular kind of spreadsheet, which is what they do at the moment, and then it transfers over to the nine boxes, and that there is nothing which will change what they do in their businesses. I cannot get to where there will be any difference in yield because you have mandated that somehow spreadsheets have been linked to an API.’
Lord Forsyth referred to previous evidence given to the committee which suggested that general preparedness was quite low: ‘The message we have had from small businesses and practitioners is that those businesses are not aware of what is required from them. On the issue of making mistakes, it is suggested that the business of moving from the spreadsheet or shoebox method…will result in more mistakes, and people are not prepared for this.’
Report by James Bunney