Philip McNeill outlines the ICAS call for clarity on timescale, sharing of benefits and a digital tax system accessible to all.
The move to digital tax administration is worldwide and to be welcomed. To ensure that benefits of digital administration are available to all, the objectives need to be clearly outlined and measurable. Implementation needs to be planned and staged to an agreed timetable.
The announcement now of the extension of MTD to income tax from April 2023 provides a good opportunity for collaborative design to maximise the benefits. This is particularly so when it comes to the triangular relationship between taxpayers, their agents and HMRC.
What has ICAS recommended?
In its Future of Taxation in the UK paper, ICAS has said that HMRC should:
- Provide a digital roadmap to set out how digitalisation of tax will progress for business and personal tax
- Ensure that the timetable for implementation will allow for new systems to be robustly tested with a pilot covering a complete ‘cycle’, which anyone can join
- Clearly set out the wider benefits taxpayers can expect from digitalisation
- Enable agents to see and do everything their clients can see and do; this must be built into all new systems from the start, so that agents can properly support their clients
- Make digital services so good that everyone who can ‘go digital’ will want to use them
ICAS is pleased to see that the recently issued report from HMRC ‘Building a trusted, modern tax administration system’ addresses a number of the above recommendations. We look forward to working with HMRC in order to put these recommendations in place.
Increasing digitalisation is not confined to the UK tax system; tax authorities around the world are adopting a digital approach.
However, in contrast to some jurisdictions, the UK starting point is a complex tax regime developed over many years – with legislation which pre-dates the digital era and is often inadequate for dealing with digital developments. This background needs to be taken into account when developing mandatory digital options in the UK.
Spreading the benefits of digital
ICAS supports the Making Tax Digital initiative as something with longer term potential for streamlining the interaction between taxpayers and HMRC. However, it is important to get implementation right and to proceed at the right pace, so that taxpayers see the wider benefits of going digital, rather than simply incurring costs to meet a tax requirement. Mandated digital interaction on a short timescale, as experienced with compulsory MTD for VAT, is not necessarily best for business. One size does not fit all; different businesses need different levels of digitalisation for maximum efficiency.
Lessons from MTD for VAT
Lessons need to be learned from the introduction of MTD for VAT before MTD for business income tax becomes mandatory. On introduction, MTD for VAT was only mandatory for businesses with taxable turnover above the VAT threshold, whereas MTD for business income tax will affect much smaller and less sophisticated businesses.
Income tax and corporation tax
Income tax returns are also far more complex, and the complexities make quarterly reporting difficult. Ideally, significant simplification would take place before MTD is extended. Work is also needed on the interaction between business income tax and personal income tax (and the Personal Tax Account and Business Tax Account). Whilst work on business income tax and the BTA has progressed, the same is not true of personal income tax (and the PTA), where work has been put on hold, leaving things in limbo and the system frequently not functioning properly.
If MTD is also to be extended to corporation tax this should take place in a reasonable timeframe. Numerous issues which would need to be addressed ahead of implementation were raised in the informal consultation meetings which took place in 2017. It is essential that a proper consultation should take place on the scope and details, followed by legislation and then at least a one year pilot (in which any company which wants to can take part).
Accessible to all
We do not support mandatory ‘online everything’ in the tax system. Digital services should be accessible to everyone and so good that everyone who can ‘go digital’ will want to use them. There must also be proper alternatives for the digitally excluded and adequate support for the digitally challenged.
The benefits of adopting our recommendations
- Providing a robust and cost-effective tax administration
- Offering digital tax administration that taxpayers will want to use, and which flows from their business systems
- Integrating business and personal income tax digital systems, to facilitate compliance and provide a ‘one stop shop’ for tax compliance
- Improving public support for tax digitalisation by ensuring it is not viewed as imposing additional costs and burdens solely to meet tax obligations
Join the debate
The recommendations in the ICAS Future of Tax paper were agreed by the ICAS Tax Board in 2020 and inform the work of ICAS Tax. They will be reflected upon and revised to reflect economic, social and political developments.
There are also opportunities to join ICAS tax committees to discuss these recommendations and many other tax policy and practical matters – email firstname.lastname@example.org to find out more about being a committee member.