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The six consutlation papers on 'Making Tax Digital' (MTD) have met with mixed reaction from small business groups and professional bodies.
The Chartered Institute of Taxation (CIOT) welcomed confirmation in the consultation documents that people considered to be digitally excluded will be exempt from obligations under the new MTD project. Furthermore, the CIOT supports HMRC’s plan for a ‘soft landing’ on penalties during the first year for businesses when it comes to fulfilling their new MTD obligations.
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“The proposals remain ambitious and wide-ranging, and the CIOT encourages HMRC to take heed of feedback received to date, and during the consultation process, to ensure that MTD is fully tested and fit for purpose for those larger businesses who will have to comply from April 2018 onwards.”
Formal consultation
This signals the start of the formal consultation period but HMRC has been engaging with stakeholders since MTD was announced last year. HMRC has said that much of the content of these consultation documents has been informed by that engagement.
Adrian Rudd, said: “Just because someone can use a smart phone to make calls and send text messages, does not mean that they will be able to keep accounting records on a smart phone or other digital device. HMRC must not underestimate that many people have difficulty using technology, and it is reassuring that HMRC have confirmed both that those who are digitally excluded will be exempt from MTD, and that there will be a ‘soft landing’ on penalties during the first year of a business’s MTD obligations. Financial support will also be available to some businesses to enable the transition to MTD.
“We also welcome the parts of the consultation on simplifying elements of the tax system, a system that is becoming increasingly complex, even for individuals and businesses with the most straightforward of affairs.
“Even with reduced complexity, many taxpayers will continue to use agents to file their returns, for instance because they remain fearful of making a mistake, or because they would rather concentrate on running their business. MTD needs to allow taxpayers the choice of authorising their agent to do as much or as little as the taxpayer instructs them to do, and development of MTD for agents must keep pace with that for taxpayers themselves. HMRC’s plans to allow agents to access their client’s accounts through third party software is welcome, but taxpayers might need assistance at a more granular level, such as basic recording keeping and submission of quarterly updates, and agents should be able to assist with that, too.”
All is not well - Brexit
However, another professional body, the Association of Chartered Certified Accountants, (ACCA) said that while at first glance it appears that there is some comfort in the documentation – at least for smaller businesses – it is clear on closer examination that all is not well. And it predicts the Brexit vote could play havoc with the penalty framework and VAT rules.
ACCA's tax and business law expert, Jason Piper, said: "As we trawl through the pages looking for further detail, one thing becomes painfully clear. The delay to the process resulting from the EU Referendum and ensuing Brexit-inspired chaos hasn’t just compressed an already ambitious timetable to a point where many of the most respected voices in UK tax have publicly expressed serious doubts about its viability. The decision for the UK to leave the EU has an even more fundamental impact on the proposals, and one which has not been addressed."
According to Piper, the most challenging aspect for taxpayers of the new regime will be working out what they need to submit, when and how. And in turn, the most challenging aspect for the draftsmen and administrators will be dealing with taxpayers who fail to get that right.
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"Up until 24 June, there was one tiny ray of sunshine in this, a small island of stability to which taxpayers and their advisers could cling. VAT is an EU tax, and EU law demands that a return be submitted. With that fixed point from which to hang the penalty framework, there would be no need to revise the volumes of law and precedent governing taxpayers obligations to file for VAT. The Brexit vote throws all of this into confusion."
Jason Piper believes that at some point in the next few years, most likely around the end of 2019, VAT in its current form will cease to apply in the UK and it will almost certainly have to be replaced by an economically similar UK consumption tax.
He said: "In designing that tax, the UK Government will have a choice between perpetuating the return based format, or exercising its freedom to align the operation and administration of the new tax with all the other activity related business taxes under MTD. Operationally a consistent reporting and penalty basis would benefit business; timetabling issues driven by misalignment of fiscal years, accounting periods and VAT staggers could be abolished. Legally it would reduce the volume of regulation, and crucially enable HMRC to apply a consistent policy across all areas of business reporting.
"Currently, HMRC is planning to make the switch-over to MTD style reporting for VAT during 2019/2020. Should the Government compound the upheaval of MTD for VAT with the revolution of introducing a new tax on an entirely different basis after just a few reports? Or retain the historic legal basis, embedding the complexities of dual penalty regimes?
"Or perhaps there is a third way – abandon MTD for VAT until we know just what’s going on. Business has enough on its plate without short term transitions which will be obsolete before they even come into force. A coherent approach to creating a uniform basis for business taxes across the UK seems an obvious priority."
Background
The consultations have been long anticipated, and cover the following areas:
- Bringing business tax into the digital age
- Transforming the tax system through the better use of information
- Tax administration
- Voluntary pay as you go
- Simplifying tax for unincorporated businesses
- Simplified cash basis for unincorporated property businesses
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Susie Hughes © Shout99 2016
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