Making Tax Digital - fact or fiction?

Man using tablet device
Philip McNeil By Philip McNeill, ICAS Head of Taxation (Tax Practice and Small Business Taxes)

12 September 2016

Yes, Minister

Civil Service World has been running a series called ‘Terminological Inexactitudes.’ It has a decidedly Yes, Minister feel to it.

For example, for ‘Consultation Document,’ we have ‘The department already knows what it wants to do.  The document will contain one policy made to look like several options, in order to suggest the department is open to ideas. It will also contain some outlandish proposals, so officials can claim to be thinking outside the box.’

Fact or fiction

The recent release of six consultations on Making Tax Digital (MTD) could be a case in point.  While five of the consultations look much like any other discussion documents, the largest of them, Bringing Business Tax into the Digital Age, has more the flavour of an advertising brochure.

Here we meet not just facts and figures, but fiction.

We have the fictional taxpayer, who for example, finds ‘the answers really helpful and has referred a number of her friends to use the webchat rather than telephone to contact HMRC with their own queries.’ Others are delighted by the ease with which they can submit their figures.

Facts or fantasy?

This, of course, is not the first time that HMRC has ventured into the realms of fantasy.  Earlier this year, we had ‘Making Tax Digital – Mythbusters’, which introduced us to four fictional taxpayers entering the new digital era with a spring in their step.

Of course examples of how the system is intended to work are hypothetical.  They have to be - none of this has happened yet.  The point of the consultation, notwithstanding Civil Service World’s definition of the process, is meant to be to decide exactly what systems are going to be put in place. Inevitably we are dealing with theory.

But theory doesn’t mean fiction.  It means facts.

And facts can be produced from a variety of different perspectives – any number of which would suggest that the current MTD proposals are throwing caution to the winds.  A much longer timescale is needed, more exemptions and less mandation.

A CA’s perspective

How would this fit your experience of client readiness for MTD?

‘We have a small limited company, £70K turnover, using Excel spreadsheets.  Once a year, before contacting us, it ‘tidies up’ the records.  Usually there is still some missing or incorrect information.

Some areas of accounting remain a mystery to the directors, work in progress and debtors among them. Until we produce figures, they have no clear idea about profitability or tax position.

We think they would have great difficulty adapting to quarterly digital reporting, and would probably need us to produce quarterly management accounts. But the cost of this is likely to go far beyond what they would be willing to pay.’

This was one anonymised example from a CA – and CAs are uniquely placed to be able to appreciate not just how MTD could work theoretically, but how it might work in practice.

Business eye view

Then there’s the business’s eye view of the facts.  And make no bones about it, for many businesses, MTD is going to involve significant extra expense.

The proprietors of many OMBs consider their efforts are best directed to making money.  That’s what suits their skill set.  Accounting and tax support, on the other hand, are bought in.  So for them, additional reporting requirements and changes to record keeping, will mean higher costs.  There isn’t any other way round it.

So does HMRC‘s essay into fiction include the business that goes to the wall as well as the lady who likes to use webchat?  Well, actually, no, Minister.

HMRC’s perspective

We could also approach the facts from HMRC’s perspective.  The consultation documents take a very rosy view of the ease with which small business will adapt to digital accounting, and quarterly submissions – and how HMRC will weather the change.

But what if - ?

If HMRC is pushed into being overly optimistic, then potentially service standards for its dealings with all businesses fall: and as a ‘monopoly’ supplier, there are no commercial pressures or market forces to bring it into line.

And as witness recent reports and research, we’re hardly starting from a high point.  Newly published HMRC figures found that just four in ten Agents reported having a positive overall experience of HMRC in the previous 12 months.

History would suggest that sweeping change – let alone sweeping digital change – can be fraught with problems.  Remember HMRC and tax credits - DWP and universal credit?

Agile development

It could be countered that the problem with tax credits was that its introduction was not ‘agile’ but how ‘agile’ is it to start with a mandatory system, covering the most difficult groups first?  Surely it makes more sense to phase in different user groups over a much longer timeframe, and respond in real-time to the issues which are bound to arise?  

Let HMRC first show that it can build a world-class system that taxpayers and businesses want to use: otherwise it’s business, not HMRC, which bears the risk.

Brass tacks realism - your point of view

HMRC is hosting both digital, and face to face events.   Your input is vital.

Venues include Belfast, Bristol, Cardiff, Carlisle, Coventry, Edinburgh, Liverpool, London, Newcastle, Norwich and Milton Keynes. Learn more.

Please go along, and take your case studies, or drop ICAS a line to ensure we can include your opinions in the ICAS submission (

Speculation to spin

The consultations are disturbing, Minister.

From the CA perspective, the client perspective, and even from HMRC’s perspective.  And not least because, when we start with fictional case studies imbued with value judgments, like those in the consultation, we are moving beyond speculation to spin.  To the manipulation of opinion.

Is that really how our tax system should be hammered out?

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