MPs: UK not ready for digital tax

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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.

Francois Badenhorst
Practice correspondent
Sift Media
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By DJKL
26th Jan 2016 10:40

Maybe if we could be given a little more exact detail of what is proposed nerves might settle.

For all the words of HMG and the talking heads the subject is still as opaque as ever, governments ought to learn to keep their mouth's shut unless and until they have something meaningful to say rather than voicing mere platitudes ,

"it's quarterly updates not quarterly returns."

Well sorry, what is the difference, please define, if not defined the distinction is meaningless. If one wrote such ill defined nonsense in a school essay it would rightly be marked down, maybe Mr Dowden / HMG might care to define/ explain the distinction?

However if the government is not going to be forthcoming with exactly what is to be required (because lets face it, the article is not clear in fact nobody is very clear as to what is to be reported once a quarter) then maybe, post the January rush, a  further campaign by accountants to flush out some certainty from HMG might be worthwhile.

For a start advising in advance each local Conservative  MP  and their opposite numbers in the  local opposition (though some will not yet be selected) of the text of an intended newsletter to all clients on the subject might make them think a little, especially if the newsletter is painted in the worst possible light. (How on earth can anyone write a balanced outline of the proposals when there is no detail about the proposals)

Pointing out to them that our clients are their voters and that we suspect our clients place a little more trust in us than they do in their local MP might also make them think.

I am not against the idea of quarterly returns/updates/whatever but nor am I convinced of the need, but I really dislike this announcement  made without definite details of what is actually going to be involved-  it is legislation by stealth and ought to be, as a matter of principle, opposed whilst no detail is forthcoming from HMG.

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By DMBAcc
26th Jan 2016 11:58

Thank you DJKL

Thank you for your posting.  I cannot fault it.  All we have been fed is spin and rumour. No one seems to know any detail of what is to be expected.  I can't understand why no MP had the nouse to ask what happens to the large number of tax payers who are not linked to the internet in any way, shape or form.  They will presumably continue to post their paper forms and this so called digital tax reform will pass right over their heads.  Maybe if the government gets rid of paper returns then these same people will disappear altogether from HMRC (I think the pigs are on the runway) or will be given free smart phones (with no connection in rural areas!!).

Oh dear isn't it sad when politicians and civil servants living in London either pretend they understand what is going on in the far flung reaches of the UK or else just don't care a bean.

Sadly money is the only god now and the welfare of its citizens seems no longer a government responsibility.

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26th Jan 2016 12:04

HMRC seem to think everyone uses cloud software or fully integrated accounting packages and that the information can be delivered at the press of a button.  Maybe the idea is being pushed forward by the likes of Sage, the next step being every business and self employed person MUST use an HMRC approved software package to keep their business records on?

I really wish HMRC would take a better look at the numbers filing Returns rather than base everything on the largest filers, who have dedicated accounts departments to handle all this.

It's hard enough to get clients to put together their information for producing accounts once a year (NB HMRC: A lot of self employed and companies do NOT use a software package and wouldn't want to!!), trying to get information once a quarter and produce a 'report' 'return' or whatever you want to call it within 30 days that is any where near correct won't be fun for anyone.

I'm totally against the idea of quarterly returns for micro businesses that have better things to do than satisfy some mandarin's utopia.  Larger companies may be able to cope with submitting quarterly figures but at some stage final adjustments would be needed, and no one has yet explained what the mechanism for those would be.

I suspect it's one of those ideas that should have been killed off but someone suggested they could collect tax quarterly rather than half yearly or yearly for many businesses and the idea gained ground.

Next step would be monthly tax payments for every company and self employed person....

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26th Jan 2016 13:31

Quarterly Returns will EQUAL Quarterly Tax Payments

Why would a government want quarterly information - only to collect quarterly tax for sure.  This is the hidden agenda.

For all those on PAYE, HMRC already have the data through RTI plus they also have the annual data for bank interest receipts and pension contributions, which could be uploaded quarterly by the banks and pension companies.

For those working through their own limited companies, a simple upload of dividends paid, a bit like the EPS for RTI, where the upload of CIS deducted by customers, prevents chasing any PAYE due, provided the CIS is greater than the PAYE.

I can see further updates like this in a similar way to RTI being required and ..... then the QUARTERLY tax demand, which will be greater if you don't upload your allowable costs, so there's an incentive to get it right.  No doubt the QUARTERLY TAX demand will be disguised as a reform of the biannual payments on account.

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26th Jan 2016 13:40

I must admit

On a personal level, the stories that MPs told of constituents who are digitally excluded, running local microbusinesses resonated quite strongly with me. When I signed up for my PTA account, it wasn't an easy process and the entire time I was thinking: How the hell is my mom or people like my mom going to do this?

I agree with LITRG: I'm broadly supportive of the digital strategy - BUT it needs more time. 2020 is too soon and it's a rushed deadline that seems to be motivated by making savings and cuts, rather than the best interests of British taxpayers. 

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By Locutus
26th Jan 2016 14:19

I felt the same

Francois Badenhorst wrote:

On a personal level, the stories that MPs told of constituents who are digitally excluded, running local microbusinesses resonated quite strongly with me. When I signed up for my PTA account, it wasn't an easy process and the entire time I was thinking: How the hell is my mom or people like my mom going to do this?

I felt the exactly same when I signed up for mine.  The process involved installing an app on my smartphone, taking photos of my passport and driving licence photos and multiple choice questions of when I opened bank accounts and credit card accounts.

Aside from difficulty of signing up (and the fact that many people will not have a smartphone, passport and driving licence), many people will have privacy concerns about doing this.

I think everything will eventually be digital, but there has to be a more user-friendly solution than this.

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27th Jan 2016 11:45

My clients keep asking me what to do how to sign up. the only thing i can say to them, be patient and wait but i can not say anything else.

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28th Jan 2016 20:22

I emailed to HMRC supportteam and here is the official answer:

Locutus wrote:

Francois Badenhorst wrote:

On a personal level, the stories that MPs told of constituents who are digitally excluded, running local microbusinesses resonated quite strongly with me. When I signed up for my PTA account, it wasn't an easy process and the entire time I was thinking: How the hell is my mom or people like my mom going to do this?

I felt the exactly same when I signed up for mine.  The process involved installing an app on my smartphone, taking photos of my passport and driving licence photos and multiple choice questions of when I opened bank accounts and credit card accounts.

Aside from difficulty of signing up (and the fact that many people will not have a smartphone, passport and driving licence), many people will have privacy concerns about doing this.

I think everything will eventually be digital, but there has to be a more user-friendly solution than this.

"Some people are able to verify their identities using a passport or a driving licence. However, if someone does not have both of these documents, they will be unable to verify their identity with GOV.UK Verify at this time. We do recognise that the lack of a valid passport or photocard driving licence is an issue for some users and we are currently working with new certified companies and investigating alternative sources of data to overcome this problem. GOV.UK Verify is a new service, currently in beta (trial) and is being constantly developed and improved based on user feedback.

By the time GOV.UK Verify goes live in April 2016 the aim is that 90% of people who are expected to use GOV.UK Verify will be able to do so. The certified companies are working to make it possible for people to use other evidence instead of passports and driving licences. By April 2016 it will be possible for you to verify your identity through GOV.UK without a passport or driving licence at all, if you have a payment card and bank account.

Please accept our apologies that we were unable to help you on this occasion. You will need to contact HMRC for information"

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By NH
28th Jan 2016 14:36

I do agree

Francois Badenhorst wrote:

On a personal level, the stories that MPs told of constituents who are digitally excluded, running local microbusinesses resonated quite strongly with me. When I signed up for my PTA account, it wasn't an easy process and the entire time I was thinking: How the hell is my mom or people like my mom going to do this?

I agree with LITRG: I'm broadly supportive of the digital strategy - BUT it needs more time. 2020 is too soon and it's a rushed deadline that seems to be motivated by making savings and cuts, rather than the best interests of British taxpayers. 

I do agree with you, however I think the point is that it is not just "people like my mum" that will struggle - I have plenty of clients around 35-50 years old that are very successful business people but still hand write their business records, and others that are anti accounting software/internet banking etc - and I include in that people from diverse fields - even a software progammer! 

 

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26th Jan 2016 14:43

What's In It For Me?

If I, as most if not all will do, complete my annual return diligently and accurately, what will I gain by submitting quarterly "updates"?

I already "integrate all the different information my business provides to HMRC into a simple, streamlined system." It's my annual return!

I will not gain at all as I already "check that the information I am collecting digitally is correct" every time I make an entry on my computerised bookkeeping system.  I couldn't run my business properly if I didn't.  And it would be an onerous task to "simply click ‘send’ to update HMRC” as I don't have a 'send' button in my system.

How can the "scope for error be greatly reduced" if I'm already ensuring I don't make any errors?  I never "face the shock of a bigger tax bill than I expected at the end of the year” because I take pains to get it right first time!  And how can "these reforms improve the quality of record keeping and reduce mistakes” when I'm not making any?

The proposed new system will score 'null points' on the WIIFM stakes, when/if ever it gets introduced.

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26th Jan 2016 15:10

quarterly reporting

I dont mind doing the quarterly reporting but HMRC system need to be more precise and error free. Self employed must also be educated in using digital reporting.  I have a client who is Chinese, unable to speak English, unable to write in English. He is not computer literate. How can he manage digital reporting?

One may ask how does he get his business in the UK. All of his clients are Chinese.

I have a number of self employed plumbers who are not computer literate. I have a new client who used to submit his own tax return to HMRC using his own log in. He did not declare any income he put in the amount of CIS deduction. He received a refund where he should be paying tax.

I also see a lot of errors in the HMRC system.

What I am saying is that HMRC system must be fool proof. All self employed must be invited to attend a training to learn the system. However, I know that most self employed will be loosing money if they go on training. Therefore they must also be compensated.

 

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26th Jan 2016 16:56

change

People dont like change

But if you look at other countries tax reporting its weird

 

EG in Tunisia Sage accounting is Mandatory for all businesses...how about that

 

In the Ukraine its monthly reporting for the self employed and if you make a loss 2 months in a row you get a visit from a tax inspector business consultant to help establish how you could possibly have made a loss...nice

 

In Sri lanka, theres no vat repayments,,,carry it forward knock it off your next liability...

 

Its fine with me because it means we have to do lots of quarterly reporting and well...we arent going to do that for free now are we? So everyones fees are going to quadrooople! So as the post says that will save businessess 700m a year....oops

 

yay!

 

 

 

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26th Jan 2016 18:13

Did this idea originate in HMRC?

This idea sounds like the sort of cr*p the digital kiddies at the Treasury come up with.  Surely HMRC has too many old time tax and VAT inspectors with experience of real businesses, both small and large, to believe this is a good idea now. 

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By bobhurn
26th Jan 2016 20:08

Smoke Screen

We may well find that the quarterly updates/returns are no more than a smoke screen for the Government's true intention of making payments on account quarterly rather than bi-annually.  I foresee an option to file quarterly (to reduce POAs) but it being mandatory to make POAs quarterly, improving GO's cashflow 

 

 

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26th Jan 2016 20:40

Quarterly payments
Sounds much more sensible than quarterly filings. Helps with national cash flow, reduces the risk of tax loss when businesses go under and flags up non compliant businesses earlier. Can live with that.

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26th Jan 2016 20:41

I have watched yesterdays debate on the petition relating to quarterly reporting and although I thought that one or two MP's put forward some of our concerns, I thought that the Ministers response beggared  belief.

According to his reply, it is still unknown as to whether or not tax will be due quarterly and exactly what information will be required. Basically the bold statement at last years Budget to abolish the tax return is now being followed by the Government making it up as they go along.

The Minister also confirmed that adjustments for Capital Allowances etc will still need to be reported at the year end anyway. So that's four pointless quarterly submissions and one er.. tax return. Will everyone have to pay tax in four installments only to then claim it back at the end of the fourth quarter when the final return, that definitely isn't a tax return, has been submitted?

Like I say, it beggars belief. Can anyone square this circle because other that it being a tax collecting exercise and despite what we are being told with regards to the system being designed to give businesses a better insight into their position for tax purposes, I cannot fathom how on earth it is going to "make tax less taxing".

Which is less taxing, submitting a three liner once a year or four quarterly submissions followed by year end adjustments?

They need to disassociate digitization from this crazy idea of quarterly reporting.

In my view the only reason that the petition only received 110,000 signatures is because a lot of small businesses owners don't yet realize what is happening. I hope that the backlash from business owners across the country will be enough to change things for the better.

 

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By Exector
27th Jan 2016 12:32

@the Poacher

I assume like me, you were once one of the old time Inland Revenue Inspectors. Don't expect them to come over the hill at the last minute like the VIIth Cavalry to rescue the situation. There are not many left and they have no influence subsequent to the creation of HMRC, with its diluting C& E,NICs & Tax Credit elements, the waves of redundancies, the increased influence of the Treasury and their supposed klever kiddiz (never knowingly undersold or opposed) and the promotion of non traditional elements  and of political placemen (& women!). Salvation is surely never going to come from that quarter and the potential in-house opposition has been thoroughly routed. We will all have to look to our own resources in the profession.

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02nd Feb 2016 08:58

I spent most of yesterday, post 31 January, collating the paper records that clients had brought in to facilitate preparation of their Returns ready for return to them, or collection by them. This was approximately 20% of clients for whom I prepared a Return, who do not have digital records of anything - it's all old school paper and carrier bags. The more savvy ones use a ring binder.

How the government expects to digitise these people is beyond me.

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