HMRC could go back to the drawing board on MTD, if evidence is provided of significant ongoing costs to taxpayers of Making Tax Digital.
Jim Harra, director of customer strategy and tax design at HMRC was speaking to a packed hall at ICAEW headquarters in London, at the annual Hardman lecture. His wide-ranging talk included MTD. A number of questioners from the floor addressed the issue of costs for taxpayers.
No impact assessment
Chas Roy-Chowdhury, head of taxation at ACCA asked why there has been little account taken of the level of MTD costs to be borne by the taxpayer.
Harra replied that it was unrealistic for HMRC to do a full impact assessment at this stage in the MTD programme. HMRC does not have the data to enable it to do that. He said that as part of the MTD consultations HMRC has asked tax agents to provide all the information they can on client costs.
Harra acknowledged that there will be transitional costs in time, effort and finance involved in moving to MTD, and said; “I am convinced that when we have made the transition to MTD people will look back and say we had to do it that way.”
Tony – a partner in a small practice, outlined how the majority of his 500 clients bring in their accounting records once a year, often in the form of an Excel spreadsheet or even handwritten records. The preparation of their annual accounts costs the client £400 to £500 per year.
Under MTD there will be ongoing cost for clients, because every quarter the processing of clients’ accounting records will have to be repeated. Under MTD, clients will either have to learn to submit own figures, or pay a considerable amount in accountancy fees for quarter reporting, which will easily amount to a four-figure sum in extra costs per year.
Harra replied that HMRC will have to gather the evidence of what MTD will cost businesses. He made the comparison with moving from one PAYE return per year to 12 or more RTI submissions, which has not cost businesses 12 times as much. HMRC wants to make the submission of quarterly updates under MTD as light as possible in terms of the amount of data and computations needed.
Harra acknowledged that there will be ongoing costs for those businesses not already using accounting software, for those who are already using software MTD may reduce their costs in future. He said “we need to get the evidence about the ongoing costs to understand it thoroughly”, and reiterated that the consultation process was the way HMRC is seeking to gather this information.
Robin Summers from a two partner firm, said MTD will lumber small businesses with high recurring costs. According to Mike Cherry from the FSB (in evidence to the Treasury Select committee) these costs would be £2,770 per year, for making five declarations each year to HMRC. Summers wanted to know how these costs would help small businesses.
Harra replied: “You have my commitment that if MTD costs small businesses £2,770 per year I will go back to the drawing board.”
Harra added – there are clearly transitional costs for small businesses changing to keeping their accounting records digitally. Part of the consultation process is to help HMRC understand what those costs are and whether the government needs to be assisting with those costs.
A separate issue is that will MTD, in the longer term, help businesses get their tax right at minimum costs?
Harra hopes that responses to the MTD consultations will provide lots of data in this area.
You have three days left to tell HMRC about the ongoing costs for your clients of MTD. Please reply to questions 39 to 44 in the MTD: Bringing business tax into the digital age, outlined in Rebecca Cave’s draft MTD response: Costs and savings.