Tax: MTD by any other name

Donald-Drysdale By Donald Drysdale for ICAS

14 August 2019

As the OTS considers simplified tax reporting and tax payment arrangements for the self-employed, Donald Drysdale sees this as a fresh opportunity to reshape parts of the MTD project, particularly for smaller businesses.

Background

In July 2018 the Office of Tax Simplification (OTS) published a report on the platform economy. This looked at gig economy workers who operate through online platforms, how they pay tax, and how this might be simplified.

It reported an appetite for a system which would feel more like PAYE for those platform workers who are self-employed – without affecting their employment status. It also explored the possibility of an app for self-employed people to help them manage their tax affairs.

A few months later, in January 2019, the OTS published a technology discussion paper asking, somewhat naively, whether tax simplification would still be needed as technology advances.

This suggested that HMRC might apply new technology in engaging with the public to deliver efficiency and cost savings, and enhance the current personal tax account to deliver better-targeted guidance and information.

I reacted to this discussion paper in my article ‘Should we understand our taxes?’, noting a disconnected OTS reference to the concept of introducing withholding tax regimes for the self-employed in the platform economy.

On 10 July the OTS published a scoping document describing a new project about simplifying tax reporting and payment arrangements – apparently aimed much more widely at self-employed people and landlords of private residential property.

Scope of the new project

The OTS will explore the respective pros and cons of existing tax reporting and payment arrangements for self-employed people, and of new potential developments or planned approaches.

It will examine existing requirements such as those of the construction industry scheme (CIS), and will consider additional options for information reporting or payment of tax to take place closer to real-time.

The stated objective is to consider how such processes could be made simpler or developed in a way that is straightforward to use, so that people can meet their tax obligations in a practical, convenient and streamlined way.

While the main focus of the project will be on self-employed people, the OTS will also consider the position of those receiving rent from letting residential property, whether on a short- or long-term basis.

Making Tax Digital

Making Tax Digital (MTD) was a Government initiative designed to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

When MTD was first mooted, many taxpayers were sceptical about the brave new world it heralded – in which a joined-up approach to accounting and tax would allegedly simplify tax compliance for all. But practitioners and their representative bodies, including ICAS, generally supported using digital to drive simplification.

Whether taxpayers’ doubts were justified from the outset or simply became self-fulfilling prophecies, MTD faltered. There were many contributing factors – not least, HMRC’s attention deflected by Brexit, and a lack of readiness in the cloud-based accounting and tax software marketplace.

MTD has been implemented on a reduced scale for now – mandatory for most VAT compliance and as a voluntary pilot for self-employed and landlords’ income tax. But the delays have been helpful in allowing the market in software solutions to develop further, and we may expect MTD for income tax to proceed more smoothly than originally envisaged.

Accelerating tax collection

While Brexit has distracted Government focus away from reforming tax compliance, this is likely to be only temporary. It seems inevitable that technology will be harnessed to ensure that tax liabilities are reported and settled sooner.

The scoping document contains little to suggest that new withholding tax regimes would be restricted to those in the platform economy. It envisages they might apply much more widely, take account of other income, and be imposed on a mandatory basis.

Moves towards stricter online reporting deadlines – a central feature of MTD plans – should come as no surprise. However, imposing tax payments on account in real-time could prove challenging, especially if adequate recognition is to be allowed for business expenditure.

One thing is reasonably certain. A project which aims to simplify and streamline tax payment arrangements for the self-employed and landlords is likely to create significant hurdles for smaller businesses, and they will turn to practitioners for advice.

Input requested

In issuing the scoping document, the OTS has invited interested parties to submit their views or options for improvement by 30 August. ICAS plans to respond to this invitation, and hopes to meet with OTS representatives at CA House early in September.

If you have any thoughts which you’d like ICAS to take into account in its response or in any ensuing discussions, please email the ICAS tax team

Article supplied by Taxing Words Ltd

Topics

  • Tax

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