MTD: How to change the government’s mind
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.
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.
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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