Making Tax Digital: Why did the Titanic sink?
As a chartered accountant, chartered tax adviser and chartered IT professional, Donald Drysdale shares his thoughts on project risks inherent in ‘Making Tax Digital’. The views expressed below are his own and not necessarily those of ICAS.
The story of RMS Titanic is well known. In his book Titanic: Enterprise and Risk experienced change management consultant and former tax technology project manager Kevin McPhillips of Sentia+ Ltd focuses on the people, businesses, institutions and the historical context that all contributed to the 1912 disaster.
Titanic was built for the White Star Line and, following limited sea trials, was certified as seaworthy by the Board of Trade in spite of having only a third of the requisite lifeboats. She embarked on her maiden voyage from Southampton to New York but collided with an iceberg in the North Atlantic. She sank with the loss of 1,514 lives. The nearest ship, RMS Californian, failed to respond in time to Titanic’s distress signals.
In his book, which uses the story to illustrate points still common and relevant to businesses today, McPhillips asks: ‘Why were so many lives lost on Titanic’s maiden voyage?’ He blames a combination of design trade-offs, inadequate preparation for service and poor communications. He finds no intentional erosion of safety, but notes arrogance and carelessness by White Star Line and negligence on the part of the captain of RMS Californian. He concludes that the loss or life was not caused by so-called ‘bad luck’.
Is MTD unsinkable?
Making Tax Digital (MTD), the government’s vision of having one of the most digitally advanced tax administrations in the world, is to be delivered by HMRC. To describe MTD as a reform of tax compliance obscures the reality that it is a colossal IT and change management project affecting some 5.5m businesses and more than 50m taxpayers. Titanic was the largest ship afloat in her day, but (by analogy) she is outclassed in scale by MTD.
I find the Titanic analogy helpful because many experienced tax practitioners fear that MTD may turn into an equally shocking disaster. The government (let’s regard it as analogous to the Board of Trade) might not impose adequate quality controls and safeguards, especially at a time when senior IT appointments at HMRC and the Government Digital Service are changing too often.
HMRC (like the White Star Line) seem intent on thrusting ahead with unrealistic ambitions and timescales, more interested in realising short term gains than creating a safe direction of travel. If things go wrong with MTD, as they have done on other significant public sector projects such as Real Time Information (RTI) or Universal Credits, HMRC would be open to severe criticism – but the taxpayer would foot the bill.
Typically transatlantic steamship operators in Titanic's day had a callous disregard for steerage passengers. In similar fashion, it seems that MTD will largely ignore the needs of small businesses – forced into digital record-keeping and online reporting. In this unfamiliar territory they’ll be at the mercy of hidden icebergs (e.g. data security risks, accounting costs, extra professional fees), with no lifeboats to save them.
Taxpayers not already maintaining their accounting records digitally, and in many cases not needing to do so for other purposes, are justifiably cautious. Recent research by FSB shows that 42% of their members have been a victim of cybercrime in the past 12 months, costing an average of £4,000 per business. Many such businesses simply don’t have the skills or resources to protect themselves from online fraud.
MTD will encourage use of cloud-based accounting services, many of which may be better and more secure than local systems, as outlined in What does cloud computing mean accountancy? But businesses trying to select the best accounting solution with the most secure provider may run into difficulties without sound professional advice. After all, recent hacking incidents at Dropbox (a popular cloud storage provider) and Yahoo (a leading email provider since acquired by Verizon, one of the government’s identity providers for GOV.UK Verify have revealed just how insecure personal data and encrypted passwords can be.
Many change programmes fail, not as a result of shortcomings in method or process, but because of a failure to instil positive and hopeful attitudes. What then are the prospects for MTD, which involves HMRC (an organisation with reportedly low morale) imposing costly new administrative burdens on small business proprietors who already consider themselves over-worked and under-rewarded?
What might make MTD more viable?
Use of MTD should be voluntary. Whenever a secure, user-friendly digital solution addresses a tedious chore, it should attract willing users among businesses and individuals alike. To prove the point, look no further than the success of DVLA digital services.
If a voluntary approach is adopted, those creating the new system face the invigorating challenge of making it attractive and easy for users. To achieve this, they are likely to set realistic goals, aiming initially at those most likely to become enthusiastic early adopters. By trailblazing the system in this way, they should create a natural following among others eager to experience the advantages they might otherwise miss.
If the government ignores this advice and insists on imposing MTD as a mandatory requirement, it should apply initially only to large businesses – most of which are already accustomed to working digitally. It should only be extended to smaller businesses once it has been fully tried and trusted, and proven to work in practice.
In a lesson we can learn from the Titanic, the whole process of designing and building MTD should be slowed down to avoid inappropriate design trade-offs, inadequate preparation for service and poor communications. For a start, HMRC are wholly unrealistic in expecting all those potentially adversely affected by MTD to study the 212 pages of consultation papers issued on 15 August, consider the complex issues set out in these, and respond adequately by the 7 November deadline.
Unfortunately, we can’t expect the government to persuade HMRC to extend the consultation period. So if you haven’t yet shared your views on MTD with ICAS, please do so by emailing us at email@example.com
Finally – my thanks to my Titanic inspiration, Kevin McPhillips. He learnt much about managing risks during 20 years as a competitive skydiver and parachute instructor. I suspect that MTD may require more than these skills to achieve a soft landing.
Article supplied by Taxing Words Ltd