Is Making Tax Digital in trouble? HMRC is having trouble facing its forthcoming commitments, including the flagship Making Tax Digital (MTD) programme.
That’s the finding of the UK government’s Public Accounts Committee (PAC) which, in a report into HMRC’s performance in 2016-17 into HMRC’s performance in 2016-17, highlights the fact that HMRC is undertaking 15 major transformative programmes, of which MTD is just one.
At the same time, HMRC is dealing with the demands of Brexit, numerous tax avoidance/evasion cases thrown up by large-scale data leaks such as the Paradise Papers and the roll-out of the Universal Credit benefit system.
“HMRC’s transformation programme is not deliverable as planned due to unrealistic assumptions,” concludes the report. “HMRC again told us that it is not credible to continue with its transformation programme as it is.”
This has been reflected in the MTD roll-out so far. The inaugural phase of Making Tax Digital for Businesses (MTDfB) comes into force in April 2019 and mandates digital record keeping and filing for VAT. Other types of business taxes will be added to the scheme from April 2020 at the earliest, although requirements have yet to be confirmed.
However, until July 2017, the timeline was still that some self-employed and landlords would switch to digital tax filing from April 2018, with more self-employed following in 2019 and corporation tax payments joining the scheme in 2020.
All of this was officially abandoned following the dropping of any mention of MTD from the Finance Bill by the government earlier in 2017. At the time, some observers suggested that MTD would be abandoned entirely. As it stands, plans for MTDfB roll-out have essentially been kicked into the long grass.
The government had placed the blame for postponement on businesses and individuals, with Financial Secretary to the Treasury Mel Stride saying: “Many have been worried about the scope and pace of reforms.
“We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.”
Do you need to worry about MTD?
The net result is that many say there’s confusion and uncertainty about the government’s plans for MTD – and the PAC’s report into HMRC’s performance is unlikely to help.
Put simply: if you run a business or an accountancy firm, is MTD still something you should worry about in the near or even mid-term future?
Brian Palmer is a tax policy adviser and a recipient of the HMRC’s Tax Transparency Award. An expert voice on tax at the Association of Accounting Technicians, he says the future timeline of MTD will be defined by the success of MTD for VAT.
“Personally, I think any further mandation before 2021 is a tall order,” he says. “In fact, it’s impossible unless ministers conclude very early in 2019 that VAT mandation has been a resounding success.”
Although some are critical of HMRC’s roll-out of MTD, Brian is more charitable. He says: “I believe HMRC has handled the roll-out of MTD as well as it could, given the plethora of elections, the EU referendum and constant ministerial interventions. All have left the department with its hands tied.”
Keep calm and carry on
When asked what advice he’d give to business staring down the barrel of the MTD deadline, either VAT-related in 2019 or in the assumed future of online corporation tax filing, Brian’s message is simple: carry on regardless.
“The message must be it is going to happen,” he says. “With the benefit of nearly three years hindsight [since MTD was announced] it’s clear that, whether HMRC started the move or not, with the power of cloud-based computing these changes are going to happen anyway.”
In fact, Brian suggests that VAT-registered business start filing digitally before April 2019 by joining the HMRC beta-testing programme. He says: “If you get in early, you will be able to enjoy the benefit of support from your software provider and HMRC before user demand ramps up post March 2019.”
Joining the beta programme can be done by enquiring with your accounting software provider.
The “business as usual” mantra is also one Brian advises for accountancy firms whose clients face MTD for VAT. As with our advice for MTD, he advises accountants to plan for MTD and engage with clients early so they become the go-to source of advice.
“Paint a vision of the post MTD-implementation future,” Brian suggests. “Let clients know you will be able to work with them to harness the benefits of easy-to-understand real-time information.
“The future is one where accountants will refocus their activities away from the provision of reactive accountancy post end-of-year services to the provision of timely in-year consultancy services.”
“Need for clear direction”
The future is undoubtedly one where MTD is accepted into our business and personal lives like most other forms of online activity, such as banking. It’s worth remembering that the ultimate goal of MTD is to make tax filing easier and more effective for everybody.
This is a viewpoint Brian agrees with although with a note of concern similar to that raised by the Public Affairs Committee report: “Given that we are now only just over 12 months away from mandation [for MTD for VAT], HMRC needs to be more forthcoming with clear direction and advice to software developers, taxpayers and their agents.”
Guide to Making Tax Digital for accountants and bookkeepers
Discover what Making Tax Digital means for your practice including the key dates you need to know and the five steps you should take to prepare now.