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MTD: How to change the government’s mind

20th Feb 2017
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Wendy Bradley has spotted a way to defeat the government over Making Tax Digital – use its own policy assessment tools to fight against the proposals.

New policy

Any major change in government policy requires an impact assessment to be drawn up in advance of draft legislation. Making Tax Digital for Business (MTDfB) is certainly a major change in tax policy, so the tax version of the impact assessment: A tax information and impact note (TIIN) was attached to the MTD consultations.  

Use its own tools

The most promising way of trying to change the government's mind is to ask it to use the tools it already has. A TIIN is a decision-making tool. The government decides to solve a particular policy problem, and sets out in the TIIN the costs and benefits of doing so in a particular way. The costs and benefits of solving it by other methods should have been considered and discarded along the way.

Issues with TIINs

There are three different issues that can arise with a TIIN:

  • Has the work been done
  • Are the results correct
  • What use has been made of them

Was the work done?

There can be the failure to do due diligence in one or more of the tests contained within the process to draw up the TIIN. The action that can be taken depends which test has been skimped. 

For example there is a statutory requirement to give “due regard” to equality (the Public Sector Equality Duty), so if the equality impact field of a TIIN were to be blank that would leave the department open to judicial review. This isn’t by any means an easy option, as the Fawcett Society found when they attempted a judicial review of the 2010 Budget.

If another of the impacts which the government has said it will consider before making new regulations had been skimped, then there is still the possibility of judicial review, on the grounds of "legitimate expectation". In other words, if the government has said that it will consider, say, the impact on small firms when it brings in any changes, this creates the legitimate expectation that it will do so in any particular instance. 

When looking at the impact of MTDfB, this is a non-starter. HMRC has considered all the relevant impacts, so the next question is whether we agree with their results.

Are the results correct?

There has been considerable scepticism in the tax profession about HMRC’s figures for the tax gap, and of the projected costs and benefits to businesses of changing to digital record keeping. 

This is more difficult territory: The way to counter inaccurate figures is by providing accurate ones, but the obvious difficulty is that a number which more closely aligns with HMRC's vision is unhelpful, and a number which does not is unlikely to be believed. AccountingWEB has already asked for an analysis of the tax figures and will keep you updated on the results.

Crunch the numbers

So what does the impact assessment for MTDfB actually tell us? If we accept the government's own figures, it tells us that there will be £10m, £310m and £625m more tax collected in 2018-19, 2019-20 and 2020-21 respectively: "The MTDfB changes will contribute £945 million to the Exchequer by 2020 to 2021". 

That £945m is cancelled out by businesses transitional costs, which in the same three tax years are reported to be £100m, £500m and £350m, a total of £950m in transitional costs alone, £5m more than the total tax saving. 

This should be dynamite: The costs do not outweigh the benefits, and therefore the proposition (MTD) should not go ahead. 

There is an argument to be had about the figures for 2021-22 and beyond which show theoretical savings of £100m a year, but these are not included in the figures validated by the Office of Budget Responsibility. So taking the projected costs and savings in this parliament together, there is no quantified benefit to MTDfB. 

Next steps

How can we follow this through? It is for parliament to pass legislation, and you would think MPs would notice that the legislation they are being asked to pass is not justified on the figures presented. 

Sometimes overworked politicians need a bit of help: Maybe the most practical thing any of us can do about MTDfB is to write to our MPs. You might explain that there is a good customer service argument to go ahead with modernising the HMRC computer system. 

On the government's own figures, there is no justification for putting businesses through the trouble and expense of being required to keep digital records and upload them to HMRC four times a year. After all, the government's own impact assessment says so.

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Replies (24)

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Jonathan@Aiteo
By [email protected]
20th Feb 2017 16:00

It's a minor point, but the table presenting the cost-benefit of the admin burden doesn't even add up for 2018/19.

£100 - £40 + £500 = £560, not the £570 shown.

Was this table produced on a digital system, I wonder?

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Jonathan@Aiteo
By [email protected]
20th Feb 2017 16:03

Am I also right in my skim-reading that the business case numbers do not include any cost impacts for HMRC? It seems to be business-focussed only.

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Replying to [email protected]:
Jonathan@Aiteo
By [email protected]
22nd Feb 2017 17:45

According to testimony today in the Lords committee, HMRC's own implementation cost is £227m. They don't yet know what the ongoing operating cost will be.

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By RobertD
20th Feb 2017 16:41

Next task is to find an MP who understands or can be bothered to understand this.
If you write to your MPthey will reply with one of Jane Ellison's glossy letters and think the job is done.

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Replying to RobertD:
By Wendy Bradley
20th Feb 2017 21:49

But half a dozen individuals writing to the same MP on the same topic (not a form letter but separate communications) makes a substantial postbag. An MP with a substantial postbag on MTDfB is more likely to contribute to the debate on the FB. And it's possible for a Finance Bill to be amended, just about. That's how the system's supposed to work, anyway - let's give it a go.

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Replying to wendybradley:
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By wood and co
22nd Feb 2017 16:42

When I emailed Andrew MURRISON MP about MTD he simply sent it onto the Treasury who will ignore it. He is uninterested.
Some organisation with the resources should be sending every MP regularly the latest on MTD to wake them all up. They do not realise this is as big as when Self Assessment was first mooted.

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Replying to RobertD:
Jonathan@Aiteo
By [email protected]
21st Feb 2017 10:46

My local MP (Tom Tugendhat) wrote a covering letter to Phillip Hammond on my behalf with my observations attached.

Of course, it may not be read in detail, but I do think that, along with the rates debacle currently rumbling, Tory MPs in particular will be responsive to pressure from the business community.

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Replying to RobertD:
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By NYB
21st Feb 2017 12:11

Quite. In the past mine has just forwarded it on to office and Dept in charge. Job done! MPs aren't interested in HMRC stuff. They like high profile helping the sick and underdogs etc that gets them glowing pictures in their local rag!

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By Tim Vane
21st Feb 2017 09:42

...meanwhile, the people in the real world rolled their eyes briefly and got back to doing something useful.

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Jason Piper
By Jason Piper
21st Feb 2017 12:11

tbh, I'm not sure how HMRC have done an impact assessment on costs at all.
The biggest population, who'll have the highest proportional transition costs, for MTD are the micro/S end of SME. But we don't yet know how many of them there are, because the exemption thresholds haven't been set yet.
And, because HMRC have only just announced the existence of the "spreadsheet" option (likely again to be of most interest to whatever is left of the micro/S population once the threshold is set) neither we, HMRC nor the software houses have any idea what those products will look like, still less how much they'll cost. So, what's the assessment based upon?

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By johnjenkins
22nd Feb 2017 11:01

While the deliveroo and cabbioo boys want employment status whilst being self-employed, then Government will continue to try and get small business onto PAYE whatever the cost. They will totally ignore what anyone, who knows, says.
The only saving grace is that MTD in it's present form will not work.

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Replying to johnjenkins:
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By Peter Cane
22nd Feb 2017 12:24

Have to say I agree with you, John. One of my initial concerns with MTD was the effect it would have on small businesses, such as self employed plumbers and gas engineers. Once MTD comes in, many will think it not worth the hassle and end up working for British Gas or one of the other big energy firms. By 2022 or so, if MTD becomes a reality, I doubt if you'll be able to get anyone to service your boiler/heating outside of the big firms.

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By Ajtms
22nd Feb 2017 11:06

I agree, we must contact our MP's

What was the Conservative Party's 2015 Election Manifesto promise? To quote from page 19 (PDF version page 21) there is the title "We will cut red tape." followed by the text "This Government was the first in post-war history to reduce the burden of regulation. We will cut a further £10 billion of red tape over the next Parliament through our Red Tape Challenge and our One-In-Two-Out rule. This will support our aim to make Britain the best place in Europe, and one of the top five worldwide, to do business by 2020." One of the most sensible things that came from this was to introduce annual VAT returns for small businesses to relieve them from the previous burden of quarterly reporting. Businesses with turnovers of up to £1,350,000 can benefit from this by preparing just one set of annual accounts and their VAT return at the same time. How refreshingly simple! Once again, sensibly, the government retained the option for a business to continue with quarterly reporting if it found it was beneficial to do so i.e. where they had more VAT repayments than VAT liabilities.

With the government taking such a sensible approach with VAT why are there people in HMRC who seem to believe that the government should break its Election Manifesto promise to the electorate and introduce red tape at a level never previously seen by any former government or voter. We need to make all MP's aware of their Manifesto promise and to enlighten them that introducing quarterly reporting will severely damage the economy. If the Government breaks this promise to the people of this country they could well become unelectable in 2020.

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Replying to Ajtms:
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By johnjenkins
22nd Feb 2017 11:28

MTD WILL reduce red tape and it WILL make things easier for business to illuminate errors therefore supplying this Government for much needed cash to get back the £1.3b spent on this pile of crap.
No one is interested.
Just for the record, even though there is no credible opposition, the Tories will not get in with a majority in 2020, because they WILL destroy the small business sector. Maybe that is the real intention.

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By rogertax
22nd Feb 2017 12:25

Thank goodness that AccountingWeb still publishes articles by Wendy Bradley (and just look at her CV), Rebecca Cave, and John Stokdyk.

Rebecca Bennyeworth (she of DAG) appears to have forgotten that she used to think that HMRC could do with a "reality check" and now reports that clients, once they move to the cloud "will discover the benefits of having more up to date records...).

Deloittes reports that 81% of the UK population were smartphone users in May 2016 with annual adoption rates falling to between 2 and 4% in subsequent years. But, how many use their phone for bookkeeeping?

She must have read the Treasury Select Committee's Report and is quoting as saying, when giving evidence to the House of Lords Select Committee on 8 February,
“They (clients) do use Facebook but couldn’t use accounting software in a million years.”

Nevertheless, she will be speaking at QuickBooks Connect London. I doubt that she will be suggesting that HMRC should defer MTD's introduction.

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Replying to rogertax:
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By richardterhorst
23rd Feb 2017 10:49

The majority of my clients are IT professionals and they do not use their phones for bookkeeping other than Receipt Bank apps.

Neither have they a clue (or a wish) on how to keep their books. That is my job they say.

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By Michael C Feltham
22nd Feb 2017 14:14

Interesting to examine the "Witnesses making representations to the Lords Select Committee on MTD...

See here:

https://www.parliament.uk/business/committees/committees-a-z/lords-selec...

And here: (more significantly)!

https://www.parliament.uk/business/committees/committees-a-z/lords-selec...

And earlier:

https://www.parliament.uk/business/committees/committees-a-z/lords-selec...

Read this and weep....................the "Enquiry is loaded with big firm honchos.

Now, what on earth do they actually KNOW about bottom echelon SMEs?

John Whiting: nice man very clever, But head of PwC's Tax Department and Senior Tax Partner for years...

Now, of course, the Office of tax Complification.

And proliferation.

http://www.parliament.uk/documents/lords-committees/economic-affairs-fin...

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By Mr J Andrews
22nd Feb 2017 15:51

I wrote to John Pay { HMRC Consultation Co-Ordinator } , c.c'd to Rt Hon Andrew Tyrie last October following the initial so called consultation documents . Pay believed my comments and complaints were more worthy of his MTD Policy Team - to whom he passed my letter , no doubt a room or two down the corridor in Parliament Street , for a resonse . A third of a year on, a reply is still awaited . So perhaps writing to MPs and copying HMRC is the way forward.
Wendy's logical conclusions summarise what we all suspect about the dumbest idea yet from HMRC ; I shall certainly pursue with my local MP . Yes I shall include other contributors comments - in particular those of Peter Cane who is rightly concerned at the anticipated HMRC's MTD destruction of small businesses.
Already my smaller clients are most anxious about the LOWER LEVEL of MTD's starting point . James Harra's absurd figure of £10K still seems the vogue for rounding up just about everyone into quarterly forced labour.
These are worrying times for the Revenue's customer - worry caused by HMRC alone.
And what about the poor unsuspecting unrepresented small business ? I asked my local window cleaner what he thought of MTD ; he replied ''milk and two sugars please guv''. The Revenue have failed dismally under its duty of Care and Management under Section 1 TMA 1970 by discriminating against these individuals with lack of information - or simply no information whatsoever.
This MTD debacle mirrors the ABJECT FAILURE by HMRC - as criticised by the Association of Charitable Foundation {ACF} last year for not engaging with the charity sector earlier in respect of the Common Reporting Standard , creating months of unnecessary anxiety and uncertainty. At least the ACF was eventually provided with welcome guidance within HMRC 's manual updates to include potential HUMAN RIGHTS implications............[ Any breach of Article 8 with MTD ?? ]
Harra's MTD has , in my book , caused more to alienate the Revenue and the Profession than any other crass idea.
Remember 'Working Together' ? Stick it.

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By John R
22nd Feb 2017 18:13

Just watching the live House of Lords Select Committee - Reps from HMRC including Jim Harra. Then fire alarm went off and proceedings suspended. Hopefully the same will happen with MTD!
Edit - It was the division bell not the fire alarm.

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Replying to John R:
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By johnjenkins
22nd Feb 2017 16:38

Don't you just love it. The fire alarm went off. Perhaps those present might just take that as a hint.

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Replying to John R:
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By richardterhorst
23rd Feb 2017 10:51

Pity. An unelected body of old males totally out of touch with the real world.

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Replying to richardterhorst:
Jonathan@Aiteo
By [email protected]
23rd Feb 2017 11:14

Did you watch the proceedings? Not just old males, with Baroness Bowles making particulary incisive contributions. Though quite what is wrong with old males I'm not sure.

Lord Turnbull challenged HMRC at the end said they were heading for "a major row" with the public. Out of touch? Hardly.

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By 7555775
22nd Feb 2017 20:01

I was just looking at HMRCs agent communication number 58. Apparently the only way for agents to communicate with HMRC following MTD will be using commercial software. Also the ICAEW's latest offering is that when we have less work due to things like MTD we can all be business advisors, sell software and sell tools eg cash flow projection software and we can always be part time FDs for premium rates.
I can imagine what your average plumber or carpenter etc. would say if I suggested anything remotely like this and it would include quite a few F words.

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By 7555775
22nd Feb 2017 20:18

Cost analysis small trader, uses Nokia phone no smart phone or broad band etc.
Laptop £400
Printer scanner £100
Software £150 min for MTD plus for upgrades, maintenance
My time helping when they get stuck £200
Cloud storage £ no idea
Broadband fees £32.99 per month plus £30 connection fee plus line rental £17.99 per month
Cables, mouse etc £20
Microsoft office £200
Windows 10 say £60
So for someone who does not already do all this, this is the implication. And then they have to pay me to sort out the mess, so how does this save money? This is also less efficient than getting me to do it all for them. And it would all be allowable for tax, ha

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