1. “There is currently no consistent approach to record keeping taken by businesses.”
Well, why on earth should there be? Does a coffee shop need to keep the same kind of records as an engineer? Does a picture framer need the same kind of records as a garage? HMRC seems to have developed a desire to sheep-dip all businesses and make them all keep the same records in the same way. (The headline is from 2.1 on page 10 of Making Tax Digital: Bringing Business Tax into the Digital Age)
The devil is in the detail: if you keep your records on an excel spreadsheet, then you really should reply to the consultation, because HMRC thinks that’s not good enough and you may have to make major changes. All businesses (except those with a turnover smaller than £10k, and possibly the next-smallest, depending on the outcome of the consultation) will have to start keeping their records electronically, on an app or a computer programme, and send a summary of the results to HMRC four times a year.
Why? Why oh why are they doing this, do I hear you ask? Read on!
2. “HMRC estimated that the Making Tax Digital changes will help to reduce the tax gap and contribute £945 million to the Exchequer by 2020-21”
(Impact Assessment, page 67, ibid)
HMRC thinks small businesses are stiffing the public out of £6.5 billion a year. Seriously. This is also from the impact assessment:
Revenue lost to HMRC due to errors and failing to take reasonable care was estimated at £6.5 billion in 2013/14. The methodology behind this estimate is published in Measuring Tax Gaps 2015. To calculate the revenue benefit, assumptions were applied to break down the £6.5 billion figure into revenue lost from small businesses within the scope of MTD, and due to errors and failing to take reasonable care. These were then projected forward to 2020/21 by assuming it will grow in line with the OBR’s forecast tax liabilities.
and so they are kindly going to invest £1.3bn in “transforming” tax administration to make our lives easier, and they want to make sure they make a profit on their investment:
In particular, the return on the £1.3bn investment in transforming tax administration would not have been realised as those most motivated to adopt the new processes would be the ones least likely to be making mistakes currently
(para 2.6, page 11, ibid)
Seriously, the government thinks that small businesses are making mistakes in their tax returns sufficient to pay back a £1.3bn investment if they make us all go digital? I mean, seriously???
Look at this report on the Business Records Check programme, particularly the table at the top of page 6 which tells us that 80% of the businesses they visited for an in-year records check were keeping sufficient and accurate records and only 11% were “red” – poor. In other words, we have been here before, and most businesses actually DO keep adequate records. Is MTD a backdoor attempt to change the definition of “adequate”?
It would be wonderful if HMRC were to become an advanced digital organisation, if they had free apps that were easy for us to use and free to download, and if they pre-populated our tax returns with the information they already have about us. Hey, it would be nice if they would answer emails, too! But this… this looks to me like a lot of stick for the fuzzy end of a very small carrot.
There are no fewer than 44 questions in the consultation itself. I have listed them, below the cut, along with my responses to some of them. However since not everyone is a sad, sad, tax policy wonk like me, you may be pleased to know that there’s a quicker way to reply: just email your thoughts to
The more the merrier!
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