MTD ITSA: What will it all cost?by
Wendy Bradley pulls apart the policy documents on the costs and benefits of MTD ITSA and discovers some astonishing assumptions leading to quite unbelievable conclusions.
Two policy documents about the costs and benefits of MTD ITSA were published on 23 September 2021:
- Extension of Making Tax Digital for Income Tax Self Assessment is essentially a TIIN, although it’s not formally signed off by the relevant Minister.
- Customer costs and benefits for the next phases of Making Tax Digital expands on the admin burden calculations.
I recommend reading them, as they’re a good laugh.
Unbelievable time costs
Say you are an averagely competent business owner. You already have a tax agent, who prepares your annual tax returns, and charges you for that work. Under MTD ITSA you will have to send summaries of income and expenditure (NOT tax returns) four times a year. Your agent is going to check them, of course. How much time (and cost) is allowed for that check and submission in the costs and benefits document?
“HMRC believes the need to submit quarterly spreads the cost of checking over the year but does not increase it”
I’m prepared to believe it might take the accountant six minutes to check the summary - provided they don’t find any problems in it - but how long will it take to communicate with them and ask them to do the check, progress chase, get the results?
HMRC assessments of cost are similarly based on what the “averagely competent” business would do – lean, prepared, digital savvy, up to date on tax law, and requiring only six minutes of their agent’s time to submit a quarterly digital update of their turnover and costs.
Are we laughing yet?
Astonishing paper to digital speed
Only 1.5% of MTD novices are estimated to need new hardware and the figure HMRC use for that is a £200 laptop.
HMRC assume that it might take businesses four hours with an agent’s help (six hours without an agent) to move from keeping paper records to using software.
I’m not exactly a computer novice, having been digital since the days of using dial-up to log onto CompuServe. But I’ve just upgraded to a new laptop and so far it’s taken me the best part of two days to set it up and get it running. It’s still not working at optimum efficiency, so I’ve had to pay the extra £200 for telephone support. I thought I might be “averagely competent”.
Risible ongoing costs
The Standard Cost Model used to calculate administrative burden is based on the extra costs of fulfilling obligations imposed by HMRC and not on the regular costs of doing business.
If HMRC makes people move from paper records, to buying and using a computer and software, is the cost of the software licence included in the figure? Since the figure given in the costs paper is actually between £158 and £317 pa I thought it must exclude the cost of a software licence. I checked with HMRC and, no, the cost of a software licence is considered an MTD cost and is included in that figure.
Mythical free software
Both policy papers are confident that there will be free software for the smallest businesses. If this free software exists it would be helpful if those papers pointed us towards it.
The only page I could find was this guide (last updated on 23 September 2021) which lists a grand total of seven software packages (without any indication of cost) and five “in development”. Surely there should be an indication of which packages offer a free version for the simplest tax affairs, if you’re extending MTD to people with a £10,000 turnover.
No laughing matter
Laugh or you can cry but the basic premise is simple. HMRC ought to have a modern computer system so we can transact with it as easily as we do with our banks. That will cost money.
Pretending that the costs will be covered by extra tax brought in by abolishing tax errors is risible. There has been, as Rebecca Cave reported, an actual uptick in the VAT tax gap for the first returns made under MTD for VAT.
Pretending that the costs will be covered by extra tax means you move into trying to get the TIIN to come out with bigger benefits than costs, which means your figures are open to ridicule.
What else is in the TIIN?
Equalities, for example: “The government has been clear that if a business cannot go digital, it will not be required to do so.” Wait, what? Where have they “been clear” about that?
If that is the case, then why are we talking about mandation at all? After all, digital submission of SA tax returns has never reached 100% but the world still keeps turning. If MTD ITSA is as good as HMRC thinks it will be, then people will turn to it because it is better, easier, cheaper and simpler, not because it’s illegal for them not to.
Incidentally, the justice system assessment in the TIIN makes no allowance for an increased number of cases of people refusing to go digital and HMRC taking enforcement action against them. Does anyone actually believe in this stuff, or is it all a big joke?
Sunny uplands and shiny people
Both policy papers envisage sunny uplands where tax is simple and seamless and friction-free transactions take place in minutes without any of us being troubled by them.
I was also amused by the shiny happy people talking about the wonders of MTD in these case studies. No disrespect to the people quoted, but you really have to laugh.
Want to keep up with the debate around MTD? There are over 60 panels, workshops, seminars and lectures at AccountingWEB Live Expo this December, covering MTD, Autumn Budget and much more - many with CPD attached.