Joint Submission to the Financial Secretary to the Treasury on Making Tax Digital by Chartered Accountants Ireland and the Institute of Chartered Accountants of Scotland.

Introduction

Without prejudice to any individual submissions made by the signatories to this joint letter, Chartered Accountants Ireland and the Institute of Chartered Accountants of Scotland wish to express our reservations about the proposals forming part of HM Revenue & Custom’s Making Tax Digital project (“MTD”).

The views expressed herein represent those of our combined membership comprising over 46,000 Chartered Accountants who in turn represent a large proportion of the UK voters, taxpayers and businesses that will be impacted the most by these proposals.

Overall, we are supportive of HMRC’s digital transformation and believe that if the UK tax system is to be both fit for purpose and the 21st century, a “digital” approach should form part of the UK regime, but only where it is proportionate and only for those who are digitally enabled and choose to do so.

The four ‘foundations’ of MTD are laudable goals, but we have significant reservations about the timescale and the mandatory approach of the project, particularly for small and medium businesses. In reality, MTD is a colossal IT and change management project which will affect millions of businesses and many more taxpayers.

Timetable

The timetable is too ambitious. Following the Chancellor’s Autumn Statement we now expect draft legislation in early 2017. According to the MTD roadmap, the first self-employed businesses required to report quarterly on a mandatory basis are due to begin doing so from April 2018. The time interval between legislation being passed and the first mandatory reports demanded by that legislation is insufficient. The premise of MTD is built on robust, well tested, secure software that links to HMRC’s system via APIs. We are concerned that there simply is not enough time to allow the software to be developed and properly tested and the impact on businesses to be fully assessed.

Brexit

As you are aware, MTD has its origin in Budget 2015 with the project roadmap subsequently launched in December of that year. The consultations were originally expected in spring 2016 but were delayed due to the EU referendum purdah, amongst other factors.

Since the EU referendum decision on Brexit was announced in June, the Government, its administrative arms and the private sector alike are facing a period of competing demands. To heap the MTD proposals on top of these existing additional workloads may be damaging. For this reason alone it would seem sensible to us to delay the implementation of MTD.

Mandatory nature

For those not exempted from the proposals, the use of MTD will be mandatory. Mandation should not be the first step in a project to make tax digital. Whenever a new secure, user-friendly digital solution is introduced, it should attract willing users among businesses and individuals alike. Initial mandation should not be required.

Impact on business

The current definition of those who will be required to submit quarterly information from the very outset will include some of the smallest, least digitally aware taxpayers who will be most impacted by the changes and any problems which will inevitably ensue from such a major change. The £10,000 exemption proposed by the consultations to exempt smaller businesses is neither realistic nor sufficient.

In its 2016 report, the Administrative Burdens Advisory Board (“ABAB”) expressed its disappointment with the announcement to mandate digital record keeping and quarterly online reporting for even the smallest businesses. They expressed concerns that the proposals for quarterly updates will be more burdensome than they currently are with increased record keeping and compliance costs. “This will have a big impact on the smallest of businesses”, they said. We echo those concerns.

The ABAB report also refers to the need for HMRC to work with the Office of Tax Simplification and it emphasises the need for HMRC to engage and work with small businesses on this issue. These concerns point to the need to delay implementation and consider very carefully how and what is being introduced.

Conclusion

In light of the all of the above, we are calling for the introduction of MTD to be scaled down and better phased in order to allow business, HMRC and software providers time to properly consider the scale and impact of the proposals and prepare and test the various systems extensively.