MPs implored the government yesterday to slow the pace of HMRC’s digital tax transformation until the UK’s small businesses and accountants’ concerns are addressed.
Yesterday’s debate was scheduled after a mass petition on GOV.UK against quarterly reporting, which has now reached 110,000 signatures.
During the Chancellor’s recent Autumn Statement, the government announced its plans to reform tax legislation to require small businesses, the self-employed and landlords to update HMRC at least quarterly, rather than filling out an annual tax return. The government intends that quarterly updates will be introduced for some from 2018, and will be phased in fully by 2020.
MPs criticised the 2020 target as premature and motivated by cost cutting rather than serving British taxpayers. The government has said the digital tax strategy will save £700m a year. “I understand the concerns of small business owners and the self-employed,” said Thangam Debbonaire, Labour MP for Bristol West. “They fear that this change will simply add to the burden of regulation they face.”
“Whilst I welcome the transformation to greater digitalisation of tax returns to ensure businesses aren’t burdened with needless form filling, the government has left many important questions unanswered regarding the current proposals,” Debbonaire told AccountingWEB.
The criticism of the proposed quarterly reporting has been strong on AccountingWEB and elsewhere. “We are not convinced of the case for moving from the current annual reporting requirement for business to a regime of compulsory quarterly reporting,” said the CIOT’s low incomes tax reform group (LITRG) in a statement. “It is hard to reconcile the government’s promised reduction in the annual cost to business of tax administration with the introduction of compulsory quarterly reporting, which will almost certainly increase the burden on business.”
HMRC has strongly denied the label “quarterly tax returns”, characterising them instead as “quarterly updates”. “Businesses will not need to file four tax returns a year. The new digital accounts will integrate all the different information businesses already provide to HMRC into a simple, streamlined system,” said an HMRC spokesperson. “Instead of one big, onerous tax return each year once a quarter businesses can check that the information they are collecting digitally is correct, and simply click ‘send’ to update HMRC.”
Oliver Dowden, Conservative MP for Hertsmere, who chaired the debate, also emphasised, “I know the wording of this petition, and press reporting, says there will be quarterly tax returns. I do note from the government’s response that it's quarterly updates not quarterly returns.”
MPs urged the government to delay the rollout of Making Tax Digital until all taxpayers were ready. “Changes to accounting and reporting are extremely intimidating to many small businesses,” said Peter Kyle, Labour MP for Hove and Portslade. People that are worried become risk averse, said Kyle, discouraging entrepreneurs.
Kyle, along with his Labour colleagues, argued that no matter how government spins it, the digital tax strategy has become deeply unpopular with businesses. “Something has clearly gone wrong: Either it’s been communicated poorly, but it’s a good policy,” said Kyle “Or it’s been communicated properly - but it’s just a poor policy.
“It needs to be tested and the period of implementation needs to be long term.”
Concerns around complexity of quarterly updates also continued to dog HMRC’s digital plans. “Rather than reducing errors, quarterly reporting could increase the risk of taxpayer errors,” said LITRG. Again, however, HMRC strongly disagreed: “The scope for error will be greatly reduced - meaning fewer businesses face the shock of a bigger tax bill than they expected at the end of the year,” said the tax authority in a statement. “Annually £6.5bn is lost through error. These reforms will improve the quality of record keeping and reduce mistakes.”
For now, the government seems unmoved and the 2020 target will continue as its stated aim. Opposition MPs, however, remain unconvinced. “I believe the government is letting small businesses down, with business rates increased by a total of £3bn during the last Parliament, and the recent announcement that the Business Growth Service will be scrapped,” said Debbonaire.