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Houses of parliament

Lords committee: MTD plans 'déjà vu all over again'

23rd Oct 2018
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HMRC’s digital VAT plans came under the microscope in the House of Lords yesterday, as its economic affairs sub-committee examined the rollout of Making Tax Digital for VAT, its pilot scheme and the recent six-month deferral for complex businesses.  

As part of an ongoing inquiry into draft Finance Bill 2018, the committee launched scathing attacks on the level of preparedness among small businesses, the cost of compliance and the figures behind the scheme. The session can be viewed on Parliament TV.

Former business leader Lord Hollick was among the most vocal critics of the programme, and declared that since the issue of Making Tax Digital last came before the committee in March 2017 “precious little progress had been made”, and quoted a famous baseball line that it was “déjà vu all over again” for those who had sat through the previous hearing.

Last year HMRC’s implementation timetable came under scrutiny from the sub-committee, who urged the government to delay its tax digitalisation until April 2020 – a suggestion that was ultimately adopted for income tax.

Responding to committee chair Lord Forsyth, Making Tax Digital for Business director Theresa Middleton said that there were “no plans” to further delay the project and that she expects all groups will be ready ahead of the April 2019 mandation date.

Pilot scheme and awareness

Prior to the hearing, the committee received evidence from parties including software vendors, accountancy bodies and individuals. Lord Lee stated that the evidence showed an “overwhelming lack of awareness and preparedness out there” from businesses and that the impression the committee had was that the project was heading for a “giant car crash”.

Middleton acknowledged that awareness levels were not “massively high” amongst the business population, but asserted that HMRC did not want to promote MTD for VAT before the pilot was publicly available and HMRC’s partners in the software industry and accountancy bodies were ready.

According to Middleton awareness levels are “where we expect them to be,” given that the tax authority only recently begun its promotional campaign.

“Our judgment is that when you start to raise awareness people say ‘what do I do?’”, said Middleton, who went on to state that until the pilot was ready it wasn’t sensible to get people “excited or anxious”.

However, Lord Hollick disagreed, stating that anybody working in the commercial sector would be delighted with high levels of product awareness and that HMRC had a duty to inform taxpayers of a “very important” change in their lives.

Hollick also criticised HMRC for narrowing the definition of the term ‘pilot’ to one that just covered whether the software was working.

“The impression we gained [from last year’s session] is that the pilot would give you the opportunity to see how businesses will react... in every other form of life an extremely valuable input,” he said.

HMRC recently opened up the MTD for VAT pilot to more than 500,000 businesses, and Middleton affirmed that the pilot did not exist just to test the software, but also to examine the “customer support model” (YouTube video tutorials, online guidance, etc) and work out if they were good enough to guide taxpayers through.

Cost to business

Baroness Kramer moved the conversation on to the cost of compliance for business. According to Kramer, a former vice president of Citibank, the evidence presented “two entirely different pictures” when it came to the financial impact on businesses.

“There is one conversation between HMRC and the software companies, for whom this is all their Christmases come together, and on the other side people who actually work with small businesses,” said Kramer.

She went on to state that HMRC’s suggested numbers were “way off the mark” and the reality would actually result in a “crushing increase” in business cost, especially when training and professional support costs were factored in.

Middleton admitted that while under the original MTD proposals HMRC’s figures showed an ongoing saving to business, its reduced scope now showed a “small ongoing cost”. This, she explained, was because those now mandated into MTD were more likely to be using software, and therefore would not reap the efficient benefits of going digital.

According to HMRC figures quoted by Middleton, the typical cost of small business software required to comply with MTD is between £10 and £20 a month, and while businesses currently using paper-based records will bear the cost of buying and learning to use it there would be an “opportunity cost” based on efficiency savings. Middleton went on to state that she believes the market will be “quite competitive”, particularly for businesses currently not using software.

One of the biggest challenges, Middleton stated, was to find a way to help taxpayers navigate through the increasingly extensive list of ‘MTD compliant’ vendors and find software suitable for their business.

Deferral for complex businesses

Along with the opening up of the VAT pilot, HMRC last week announced a six-month MTD deferral for a number of organisations with more complex requirements to give them “sufficient time for testing the service” before they are mandated to join.

Lord Leigh questioned this decision, asking if the delay was because larger companies with more complex VAT affairs had “shouted the loudest,” and if it was an example of HMRC “bending over backwards” for large customers.

This was vehemently denied by HMRC’s director general for customer strategy and tax design Ruth Stanier, who stated that the delay was due to the “complexity involved in making sure necessary IT functionality is in place.”

Stanier went on to point out that the group of businesses affected by deferment is a wide spectrum, including charities and local authorities, and the decision was driven by an assessment of complexity and functionality.

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Replies (59)

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By North East Accountant
24th Oct 2018 15:48

HMRC don't know what they are doing and just don't care.

HMRC think stupid things up, legislate for it and then charge penalties when the worked to the bone small business owner has not complied with the 22K pages of legislation and 217 HMRC manuals.

As for HMRC they can't even answer the phone or a letter within a reasonable amount of time.

MTD for VAT will be a humongous challenge.

MTD for Income and Corporation Tax will make MTD for VAT look like a walk in the park.

Thanks (2)
Replying to North East Accountant:
By Tornado
24th Oct 2018 15:57

"As for HMRC they can't even answer the phone or a letter within a reasonable amount of time."

Still waiting after FIVE months for an Exclusion 70 Tax Return submitted on paper to be processed.

What sort of confidence can be put into an organisation that is incapable of dealing with the simple things, like calculating tax properly, when they try to kid us that they are ready for one of the biggest ever tax administration changes ever.

Thanks (1)
By RogerMT
25th Oct 2018 10:12

The only benefit of a "Crash and Burn" Brexit, which is looking ever more likely, is that HMRC's collective mind will suddenly be concentrated on the administrative nightmare of recruiting and training extra staff and implementing new systems to cope with logging and collecting the vast increases in customs duty as a result of the self-inflicted wound of Brexit.
If this scenario transpires then the sensible thing to do would be to delay MTD until the post-Brexit dust has settled. Although relying on HMRC to do the sensible thing these days maybe a tad optimistic.

Thanks (0)
By nodrogbir
25th Oct 2018 12:16

How about this : just had a penalty for a client £900 partnership return late. Looked at file we already had an appeal accepted. Spent an hour either looking at documents waiting on phone to HMRC. Told that they cant access computers , not sure why its been sent. Dont worry about it. Another client 70 years of ago is being persecuted by HMRC for £30,ooo worth of penalties , sent a letter to HMRC which is ignored and now HMRC are sending threats and more notices out. Middleton sits with a smug face saying how wonderful MTD is and her side kick is a complete joke saying she hasn't seen evidence and would be interested to see reports . I completely sick to death with them all. They are a disgrace to HMRC and hopefully when it all goes wrong , if any justice , will be sacked. Rant over !

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Replying to nodrogbir:
By Tornado
25th Oct 2018 12:30

For those of us that deal with HMRC on a daily basis, it in clear that their software ship is full of holes and these holes are getting bigger and more numerous.

I think we have gone beyond the stage of stuffing rags into these holes as a short term fix for the problem and it seems inevitable that this ship is going to sink in the near future.

A good thing, perhaps, as then HMRC can start again building a new ship from scratch, but this time they will hopefully consult those that really know about tax and accounting before sailing off in the wrong direction is a ship that is not up to the job.

Thanks (3)
By Tornado
26th Oct 2018 14:09

Of course the nonsense about using Bridging Software is that it has to be manually told where to find the data it requires to make a VAT submission.

With some spreadsheets, perhaps where there are ongoing summaries of VAT automatically generated at the end of each month or each quarter, the Bridging Software will have to be 're-programmed' manually to be told where it is to find the data for that VAT period.

If it is just a matter of extracting VAT totals and entering them into VAT submission software then surely it would be best to just let people manually enter the information in the VAT submission software from their records.

It seems to me that the main change with MTD for VAT is that the information will not be submitted through the current portal but in a different format through a new 'portal'

I cannot see how having to re-programme the Bridging Software each month/quarter to tell it where to find that data it requires is going to be any more accurate than typing it manually into the VAT submission software. In fact, there are many more opportunities for error to occur as people struggle to reprogram the Bridging Software every time they want to make a VAT submission.

This whole MTD thing is exposed for what it is, utter c**p.

The mess of 'solutions' we are left with simply opens MTD up to many more opportunities for error than the current systems, and I for one am not fooled by the HMRC hype to try and justify this poorly thought out and rushed project. HMRC should be thoroughly ashamed of itself.

Thanks (1)
Replying to Tornado:
By johnjenkins
26th Oct 2018 13:20

Everybody knows that the only reason for MTD is so that HMRC will have access to every transaction made.
How much stuff gets posted to Directors loan account (being used as a suspense account). PAYE investigators will have a field day cos they could be privy to it before we get a chance to sort it out. Etc. Etc.

Thanks (0)
Replying to Tornado:
By nodrogbir
26th Oct 2018 13:53

I could not agree more - with client let loose on software when they are not trained in VAT or Accounts will mean they will push the submit button and then blame the software for the errors and the mad thing is HMRC will not even know and has insufficient manpower to check. Would you not think that they would listen to ICAEW report and rethink the whole plan. If its such a great idea why does it keep being delayed . As to the software companies they are just greedy and want the monthly fee for as long as they can get it. Wonder what HMRC will do when they realise what a mess they have made !!

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By observe
31st Oct 2018 13:01

Have the Lords committee picked up on the fact that the live pilot promised in the Spring of 2018 didn't actually go live until 16th October 2018? Are they also aware that any business buying / selling anything from / to the EU (Amazon purchase etc.) are still excluded until an 'estimated' early 2019?

There will be no time to trial any of this properly and logic would tell you a ten month delay to match HMRC's ten month implementation delay is required at the very least.

Thanks (1)