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.