Archive for the ‘MTD (Making Tax Digital)’ Category

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The magic money tree!

June 13, 2017

I’ve found it!  You know, the famous Magic Money Tree that Theresa May was saying didn’t exist?  Well hurrah, the Times is reporting this morning that apparently she has found it; there’s to be no more austerity because £2.2 billion from #MTD (along with £4 billion on “corporation tax relief” and £1.4 billion from “scrapping permanent non-domicile status”) will sort it.  Hurrah!

Except…

…as I wrote in this article for accounting web, I’m not sure there’s really £2.2 billion down the back of small businesses’ sofas.

…and as I wrote in this blog post, I’m not at all convinced there’s a correlation between “austerity” and tax receipts in the first place.

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Diversity matters

April 18, 2017

Diversity matters.  It really does.  Look, I know all the arguments about asking the people with expertise (the “best” people) and you only look at what they know so how does including the legendary one-legged black lesbian help take the discussion forward, so please, don’t be a bore in the comments and go over them again.

Instead, look at this: the announcement of a Treasury Committee witness session this morning where they will be looking, inter alia, at Making Tax Digital.  It’s not about all the witnesses this time being male.  It’s not about them all representing accountancy and taxation bodies (because, who else would you ask).  But it IS about hearing the voices of small businesses.  Remember a few weeks ago when they couldn’t find anyone from the construction industry who knew about MTD?  The people I know who work for the construction industry advising them on tax were a bit vexed about that.

If your meeting doesn’t look like the nation but like a badly-organised golf-club AGM then maybe, just maybe, you need to up your game and talk to some of the people affected but outside of the magic circle of “stakeholders”.

After all, that’s what happened with VATMOSS, remember? No-one talked to the people affected, because no-one at HMRC and HMT realised they existed.  If they’d looked at their stakeholder groups and wondered why they kept seeing the same faces, well, who knows?

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Writing to your MP

April 12, 2017

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.

JANE ELLISON

*Clutches head in hands and weeps* 

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The scores on the doors

March 6, 2017

In February the Bristol East MP Kerry McCarthy asked whether HMRC had “assessed the effect” of MTD on “freelance workers in the creative industries” and “other specific sectors”.

The answer from Jane Ellison refers her to the impact assessment which, she says,

estimated the impacts averaged across the entire unincorporated business population, using established models, consultation feedback, stakeholder engagement and internal insight.

Well yes, up to a point.  There are three different fields in the impact assessment which might be relevant to the question.  First of all, is there any assessment of how much extra tax might be expected from different sectors?  Is there a particular group whose tax behaviour is causing particular concern?  We don’t know, because HMRC won’t give us the analysis of the tax figure.

I assume, though, that the question was angled more towards the costs imposed on businesses by the requirement to keep digital records.  This is contained in the “administrative burden” figure, sometimes referred to as “red tape” – the cost of compliance with government regulation.

This is deep into policy wonk territory, of course, but there is a neat summary of the figures and how they’re arrived at here.  Essentially HMRC spent half a million pounds in 2005 on getting KPMG to conduct a research project producing a “standard cost model”: assessing a baseline figure of how much it cost averagely competent averagely compliant businesses to fulfil the obligations the tax system placed on them.  The result is better thought of as a score than an actual amount: it’s how HMRC scores its work on reducing the admin burden on business.  It reduced the burden by ten per cent overall between 2006 and 2011 – but that is an average.  It doesn’t mean that any one business would have felt a reduction of ten per cent of its costs from dealing with its tax.  A lot of the result came from changes to the construction industry scheme, for example, so contractors and subcontractors in construction would have noticed huge changes: other industries may not have felt any benefit at all.

So Kerry McCarthy’s question isn’t answered at all by reference to the admin burden figure: the standard cost model doesn’t tell you whether the creative industries, or any other specific industry, will gain or lose by a change.

The more interesting field in the impact assessment, for these purposes, is the “other impacts” section.  In a government divided into departments, with different departments having different priorities, the “other impacts” section is a kind of checklist.  If the government says it wants to reduce its carbon footprint, for example, it can add a “carbon impact” assessment to the list of things that all departments have to think through before they introduce a regulatory change.

In this instance, it’s the small firms impact test – or, as it’s now called, the small and medium business assessment or SaMBA which is where the answer to Kerry McCarthy’s question might lie.  This is where you might expect to find some granularity about how the policy might impact differently on different kinds of businesses…

…except if you look at the latest instructions HMRC staff are given on how to do this (taken from these instructions) it says

Small and Micro Business Assessment:

Small businesses (up to 49 FTE employees) – including micro-businesses (up to 10 employees):

  •   why they are included in the change
  •   what amelioration you have considered, and
  •   what consultation you have carried out.

So what does it actually say in the SaMBA in the MTD impact assessment…?

Small and micro business assessment: the MTDfB changes will improve the quality of record keeping, reducing the likelihood of mistakes (and attendant risk of unwelcome and costly HMRC compliance interventions) and help businesses to manage their cash flow more effectively. In the longer term, we anticipate a reduction in administrative burdens for these businesses.

The government recognises by their very make-up that this group includes businesses which are likely to be more affected by one-off transitional costs and digital capability issues, and may therefore find it more difficult to move to the new digital requirements.

In the consultation the government said that it wanted to consult on financial support to help some businesses make the transition to MTDfB. It sought views on the support required and what form this should take. Final decisions will be made before legislation is laid later this year.

Does this sound as though they have done some serious research into how different types and sizes of business will be affected?  As if they have the granular data that would allow them to answer the question on how creative industries will be impacted?

No, I didn’t think so either.

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Yes, and, but.

February 3, 2017

Is there a communications manager for Making Tax Digital yet?  Because – apologies if there is – but it seems to me the communications so far have been, well, pants.  Apparently we are no longer MTE (Making Tax Easier) or even Making Tax Digital (MTD) for example, but “MTDfB”.  This inelegant acronym stands for “Making Tax Digital for Businesses”, presumably because we don’t want to frighten the taxpayers horses by suggesting that pensioners and others on PAYE will have to play.  Yet.

More importantly, there seems to be no plan to communicate with anyone outside the rather small circle of people who are already tax mavens, with those unrepresented businesses who will be hardest hit by the changes.  You don’t believe me?  Put “making tax digital” into google and hit the tab for “news”.  There is virtually nothing in the general press, although the professional press is of course full of it – but no-one at HMRC is, seemingly, listening to them.

Look, there’s a serious misunderstanding here.  The consultation response says that “respondents overwhelmingly support the move to a digital tax system.”  No, it’s a recognised letter-writing technique.  You don’t think your bank really means you’re “dear” to them when they write to you, do you?

Well, generations of people have been trained to deliver unpleasant messages using the format “yes, and, but…”  You start off by finding a point of commonality, something you can agree on.  (Yes, it would be good if HMRC had a modern computer system.)  Then you go on to add something else you think you can agree on.  (Yes, it would be great if tax returns were prepopulated with the information HMRC already holds) and only then do you deliver the unwelcome message. (But making it compulsory to keep electronic records and update four times a year are terrible ideas!)

Yes, and, but.

It’s plain as the nose on your face if you look at the Treasury Select Committee’s report which helpfully summarises the responses under the heading “support for the principle” – yes, we welcome the digital principle, and we think the changes go with the grain of progress BUT… we’re worried about the timetable, about the lack of free software, and above all about mandation.

The whole basis of the current proposal is undermined in HMRC’s own Impact assessment.  The projected extra tax in this parliament (to 20-21) is £945m. The projected extra costs to business in the same period? £920m.  Extraordinarily, the impact assessment quantifies no costs for HMRC for the proposal, although the original consultation document justified mandation by saying that without it “the return on the £1.3bn investment in transforming tax administration would not have been realised” (para 2.6)

In short, HMRC, your comms are pants, you have misunderstood people’s feedback, and your numbers don’t add up.  Sorry and all that.

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MTD, the response documents

January 31, 2017

Well, here we go: the responses to MTD are now live.  There’s a ton of stuff to read, so I’m going to post my immediate responses “live” as I go through them.  Watch this space! (or, temporarily turn off notifications if you get update notices)

  1. The overview.  It’s not easy to find.  Starting from the “consultations” page on gov.uk I got all excited when today’s list showed MTD updated 31 January.  But when you go to it, it’s not immediately obvious what’s been updated at all.  The actual response document is linked from the paragraph that reads

Over 1,200 people responded to this online survey and individual responses were fed into the other consultations to support the government’s thinking. Many of the responses helped influence key outcomes.

Now, maybe it’s just me, but I wouldn’t immediately have thought that “other consultations to support the government’s thinking” was a signal for “look!  Here’s the responses doc!” (updated 3.20pm)

2. Ah!  I see!  There’s an overview document (like there was for the original pack of consultations)  Right then: here’s a link to the overview.  Speed reading: first reaction?  Great flying spaghetti monster but it’s a complacent piece of spin.  Everything is for the best in the best of all possible worlds, and a committee of MPs has published a report but we’ve addressed “many” of their recommendations.  (As I recall, the Treasury Select Committee report wasn’t happy at all).  Not sanguine!

3.40 pm.  Aha!  I just had an email from the MTD correspondence address:

Dear stakeholder,

Thank you for responding to our consultations on Making Tax Digital last year. We’re extremely pleased with the level of response to the consultations and grateful for the time and effort that you took to send us your views.

A summary of feedback received, the government’s decisions and our next steps have been published today in six response documents on GOV.UK. If you’re short of time, we’ve also published a short overview which draws out the key conclusions from each of the consultations.

Over the consultation period, we held a number of events with interested parties to communicate and discuss the proposals, including face-to-face meetings, and webinars for the public and tax agents, which attracted over 3,000 participants. HMRC also attended a range of conferences and events to reach as many stakeholders as possible. Feedback from these events has also been considered as part of the formal consultation exercise.

Your input is important as it has not only informed the development of policy and draft legislation, but has also helped give us a clearer understanding of the needs of our customers as we implement Making Tax Digital.

Thank you again for your participation.

Jim Harra

Director General, Customer Strategy and Tax Design, HMRC

Onwards!  Next reading: the revised impact assessment.

4. The impact assessment.  Er, the admin burden savings figures have been revised.  A lot.  And, lo!  The transitional costs of £100m, £500m and £350m to 2020 add up to £950m.  Now, where have I seen that figure before…????

The MTDfB changes will contribute £945 million to the Exchequer by 2020 to 2021.

Oh yeah, that was it.

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Open consultations

January 12, 2017

Oh look, there are still seven open consultations on gov.uk relating to the policy area “tax and revenue”.  Of course, it’s a slightly different list of seven from the last time I looked…

(Employment Allowance: restricting the allowance from employers of ‘illegal workers’ closed on 3 January

Withdrawal of extra statutory concessions – technical note and call for evidence opened on 10th January and runs till 7th March)

However as yet there is no sign of the promised responses to the seven consultations on the “making tax digital” proposals. And weren’t we supposed to be able to try out the free software in “autumn 2016′?  Er, hello?