HMRC's Giles McCallum on the purpose of MTDby
Giles McCallum, the director of Making Tax Digital, sets out HMRC’s vision for MTD and the benefits it will bring to the tax system.
Two things are key with Making Tax Digital (MTD): the first is that we must deliver an Income Tax Self-Assessment (ITSA) service centred around the end user – be that a taxpayer, an accountant or a bookkeeper.
Secondly, MTD should be a catalyst to drive up wider digital adoption by businesses, the self-employed and landlords, which I know will bring benefits to both the tax system and the way business operates. MTD is but the first building block of wider tax digitalisation and simplification in HMRC.
I also understand that not everyone will find the transition to digital easy. I’ve heard from those in the vanguard of digital adoption urging us to move further and faster. But I’ve also heard from those apprehensive, or indeed reluctant, about moving from paper-based processes to digital and from a single end of year submission to quarterly reporting.
Not everyone is ready to make this move just yet. That’s why the Financial Secretary to the Treasury (FST) announced the new date for the mandation of MTD ITSA, of April 2024. This will ensure we move at a pace which meets the needs of the full range of businesses and agents who will have to adopt new processes, while also ensuring that more customers have the opportunity to fully test the system by participating in the pilot.
Costs of complying
As part of the FST’s announcement, we also released our estimate of the likely costs of complying with MTD ITSA. These estimates were produced following a period of consultation with stakeholders, including business and accountancy representative bodies, testing our assumptions and gathering feedback to ensure that they reflected the likely range of experiences that different business types could expect.
Some of those who worry about the costs might reasonably ask why small businesses should have to bother with MTD at all. My view is clear. While there are costs involved, particularly in the transitional period, we expect businesses to experience benefits in the longer term, through wider digitalisation, additional resilience and time saved on administration.
The government thought long and hard about whether to produce a basic ‘one size fits all’ piece of software to use, or whether the software market was better placed to provide these solutions. We believe software suppliers will deliver products that work best for taxpayers. Facilitating a software market means a range of options will be available, so that software which does more for your business is available, whether that be tying in with bank feeds, business management tools or increased automation. So, our job now is to help develop a software market that provides for the breadth of different business needs. It will be able to do this far quicker than HMRC, and with a greater focus on continuous improvement as a result of market pressures.
For there to be a smooth transition to a more digital way of doing tax, we also believe that those with the most straightforward affairs should be able to choose a product to use which is free of charge, something we are working with the software industry to ensure is in place.
Moving to a quarterly rhythm
Alongside digitalisation one thing that some stakeholders want to understand is what drives the need to move to a quarterly rhythm of sending updates to HMRC. I want to be clear that these updates are not tax returns. They will just be a simple summary of income and expenditure drawn from the digital records you are already keeping, without the need for lots of reworking. Adjustments for tax purposes are made in an end of period statement at the end of the year and may be used to correct any inaccuracies in quarterly updates.
The core purpose behind quarterly updates is to bring record keeping more up-to-date. When a business keeps paper receipts throughout the year, the information in the resulting tax return is often incomplete and inaccurate. Receipts may have gone missing or simply a business may not remember the context of an expense. Keeping more up-to-date records will reduce those errors and give a better indication of how the business is performing.
Time to prepare
We continue to communicate with businesses and agents to raise awareness of these changes. It is vital that not only do they understand what will be required of them, but also that they are reassured that for the vast majority, this will be a fairly straightforward transition. It will bring their interaction with the tax system up-to-date and more in line with what they come to expect from the other digital services they rely on to run their business, as well as in their day-to-day lives.
The emerging evidence from our experience of MTD for VAT is that MTD is working as intended. It is cutting down on errors, making tax management easier to get right for businesses, and bringing more money into the Exchequer, which can be spent on our vital public services.
Now that we have additional time to prepare for MTD ITSA, HMRC is redoubling our efforts to take full advantage. We will work closely with businesses, agents and software suppliers to ensure we get this right and deliver a digital tax service fit for the 21st century.
Hear from HMRC at AccountingWEB Live Expo
Giles McCallum, along with HMRC’s chief executive Jim Harra and other HMRC representatives, will be speaking at AccountingWEB Live Expo on 1-2 December. This will be your chance to to put your questions to HMRC. Register to attend the event by clicking the link below.
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The director of Making Tax Digital at HMRC, Giles McCallum brings a host of experience and disciplined leadership to MTD having delivered major programmes in both public and private sectors. He has directed digital transformation programmes across multiple industries including telecoms, utilities and oil and gas.