The Treasury select committee is challenging HMRC’s plans for making tax digital (MTD) over concerns that the proposals to make digital tax accounts and quarterly updates mandatory for all businesses will increase, rather than reduce, the administration burden for many companies
Committee chair Andrew Tyrie MP presses the point in a follow-up letter sent to Treasury financial secretary David Gauke MP, after earlier correspondence on the issue. Tyrie says he finds it ‘hard to see’ how MTD will reduce the administrative cost to businesses by £400m, as the Chancellor had stated in Parliament.
‘It would be extremely surprising if such a huge aggregate saving, worth a lot to the individual businesses involved, had been overlooked by them. It would also be surprising if those who the government feel would benefit from changes to their record keeping had not spotted some of those gains,’ Tyrie wrote.
In his reply, sent last month, Gauke says that ‘the proposed changes will contribute to HMRC's target to reduce business burdens by £400m’. He does not, however, address Tyrie’s written request for an explanation of the assumption behind his early statement that only 10% of benefits would be achieved if quarterly updates were optional.
Instead, Gauke says that a detailed assessment of the impact on administrative burdens will be published alongside draft legislation. This is expected to be in December 2016, but there will be an initial draft impact assessment published when the formal consultation process begins in the spring. Gauke also says: ‘While a switch to digital may involve a transitional “cost”, I am confident that the overall benefits, in terms of ease, simplicity, speed and certainty of outcome will outweigh any initial cost.’
He goes on to say that under MTD, software will make manual activity such as transposing records into a tax or VAT return automatic, and says the software industry has indicated it is keen to work with HMRC to make available free apps for those with the most straightforward affairs.
Gauke says he wants ‘to dispel some of the myths about MTD’, and also states that HMRC is ‘considering very carefully’ support for the ‘minority without computers or smartphones’.
Commenting on the correspondence, Tyrie said: ‘For the vast majority of businesses and many individuals, MTD may be a sensible direction of travel. But there are some – for example, those who do not currently use computers or for whom quarterly reporting would be a substantial burden - who understandably remain very concerned about these proposals.
‘The government should consult widely before reaching any decisions on this. The requirement for all businesses to maintain a digital tax account needs to be tempered by provisions for those for whom this would be an unreasonable burden. Nor should an ambitious timetable be imposed at the expense of greater clarity for the millions of businesses these changes will affect.’
It is understood that the government will release three consultations on plans for mass adoption of digital tax accounts after the Budget on 16 March with one of the key topics likely to cover the contentious plans for quarterly reporting for companies, which could be significantly watered down following strong criticism from across the accounting profession and business.