My MP is Nick Clegg, the former Deputy Prime Minister. He has a pretty good office set up, so that when constituents write to him there is usually some kind of action taken. I took my own advice and wrote to him about MTD, specifically about the TIIN not supporting the change and asking him to make this point in the debates on the legislation.
What his office actually did, of course, was send my email on to the Treasury and then send me the reply.
Here are some extracts from that reply:
I am pleased that your constituent agrees that the overall direction of travel towards a more digital tax system is the right one.
I have already written about that one: practically everyone who replied to the consultation used the tried and trusted formula of “yes, and, but-”
The Government has listened carefully to the wide range of views put forward about the MTDfB proposals. Most commentators were positive about the vision of a fully digital tax system that matches what we are increasingly used to from interactions with other service providers.
Yes, that’s the “yes” part of the argument. Yes of course the UK should invest in a modern digital HMRC. Give HMRC the money to improve its service and we’ll applaud.
However the speed of implementation, and the capability of those in scope to adapt, alongside the costs of doing so, were all key areas of feedback.
This is the point at which the letter stops being a response to the points I actually raised and becomes a generic. I asked about the TIIN not providing evidence that the rewards of mandation justified the costs.
In response, the Chancellor announced at Spring Budget 2017 a significant change to the timetable, which will give unincorporated businesses (including landlords and the self-employed) more time to prepare for the changes. Those below the VAT threshold will not have to keep digital records and update HM Revenue and Customs (HMRC) quarterly until April 2019. As well as giving them (and their agents) more time to prepare, it will also ensure two full years of testing of the new system and services before they become mandatory for this group. The Government has already responded to other areas of feedback, such as exempting those with an annual turnover below £10,000 from mandatory use, making free software available for the smallest businesses with the most straightforward affairs, and accepting the continued use of spreadsheets (as long as they fully meet the key MTDfB requirements) as a form of digital record.
Sorry, but this is more boilerplate blah, not responding to the actual point at all.
Let me also set out why we are proceeding with these important reforms. The Government is investing significant sums to improve the tax system for all taxpayers, and deliver a modern digital service. There is a growing appetite for this, with millions already using their digital tax accounts to view their liabilities and payments, to claim back overpaid tax, or renew their tax credits.
Now we’re getting somewhere: we’ve had the “yes” and a bit of the “and” – now let’s see if there’s any response to the “but…”
While most businesses want to get their tax right, the amount of tax not collected due to taxpayer error and carelessness is now around £8 billion a year. This not only costs the Exchequer, but it also causes businesses cost, uncertainty and worry when HMRC has to intervene to put things right. MTDfB will reduce the tax gap caused by error by requiring businesses to keep a digital record of their income and expenditure, using software or an app, and to update HMRC quarterly with a summary of that data.
Will it, though? Will recording in an app or online actually cut down on errors and mistakes or will it add more and interesting ways to make errors? And where does the figure of £8 billion come from and how is it calculated? At the same time as Nick Clegg was sending on this correspondence, HMRC were responding directly to me on my FoI request for the underlying computations producing the figure for tax allegedly lost. In summary: they still say no.
Your constituent suggests that MTDfB should be a voluntary scheme. These reforms will deliver a better and more modern customer experience for businesses, where they can do everything they need to digitally. They will have greater certainty over their tax affairs, confidence that they have got things right, and a clearer in-year picture of their evolving tax position, allowing them to plan their cash flow more effectively. More timely digital record keeping will lead to fewer errors, thereby reducing the likelihood of an unwanted HMRC intervention. A voluntary scheme would deliver only a fraction of these benefits.
Would it, though? If MTD is really going to be a better way, wouldn’t people want to gain the alleged benefits by joining it?Or are we not talking about benefits to the taxpayer at all, but this mythical seventeen grand all small businesses have lost down the back of the sofa?
I would like to reassure your constituent that quarterly updates do not amount to quarterly tax returns. The software will produce a summary of income and expenditure for the quarter using the information that the business has already recorded, and prompt them to send that to HMRC. The update process will be light touch, not at all equivalent to the current annual tax return. There is no requirement for the update to be done by an agent, no penalty for inaccuracy in the update, and no requirement to pay alongside the update.
Are you reassured? I’m not reassured, not even a little bit.
HMRC is introducing the changes gradually, and piloting them thoroughly before mandatory use begins in April 2018 for unincorporated businesses above the VAT threshold. HMRC is running a large-scale pilot and plans to test with several hundred thousand businesses by March 2018, including those who do not currently use software at all, or who may be less confident in moving to digital.
March 2018 is just next year. Where is the software? Where do people sign up? How long will the trial last and when will the results be out? How will success be measured and who will do the measuring? There just plain isn’t *time* to do a proper trial before mandation kicks in.
At Spring Budget 2017, HMRC published an updated impact note for Making Tax Digital (MTD). The changes will reduce error on an ongoing basis by around 10%. MTD will contribute an additional £1.9 billion to the public purse over the next 5 years and just under £1 billion per year thereafter.
They’re called TIINs. This one doesn’t show that the benefits justify the cost. (It really doesn’t. It shows them as the same, with the costs front loaded and the theoretical benefits off some time in the fuzzy future. You wouldn’t buy a fridge on that basis, let alone an intrusive system that will make digital slaves of half the nation.)
We recognise that there will be costs in the transitional period for some businesses, while also recognising that all businesses are different. Transitional costs may be lower for businesses already using digital tools, or where they are eligible to use free software. Businesses that have limited existing digital capability may need to purchase hardware and software, so initial costs may be higher, but net savings will start to be made from 2021-22 onwards. HMRC will ensure that the transition to digital is as smooth as possible and is committed to making MTDfB work for its customers, modernising its services for the benefit of all UK taxpayers.
Boilerplate blah, nothing to do with anything I had asked.
HMRC will start to ramp up its communication activity to raise awareness amongst the business community during the live trial. Agents and the software industry will be key partners in achieving this. As the different start dates for different sizes of business approach, HMRC will ensure those affected by the changes are aware of any new obligations. As with any change to the way people interact with the tax system, HMRC will focus on making sure customers have the right information well in advance of any changes coming into effect.
Because HMRC has a long history of being good at this kind of thing, right? I mean, right??
Please pass on my thanks to Ms Bradley for taking the trouble to make us aware of these concerns.
*Clutches head in hands and weeps*