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Making Tax Digital for Individuals delayed by Brexit redeployments

2nd May 2018
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HMRC has announced that key projects have been delayed to free up staff for Brexit, including digital services for individuals such as the simple assessment rollout and real time tax code changes.

In an email to stakeholders, HMRC announced a “change in priorities” driven by the need to deliver the UK’s planned exit from the European Union – much of which will require detailed work on sophisticated trade systems.

While the department stated that its transformation programme was on track, it acknowledged things haven’t all been ‘smooth sailing’.

“We were overly ambitious about the number of customers who would stop contacting us by phone and post after we introduced digital channels. Demand is falling, but not by the amount assumed in 2015.”

The email followed CEO Jon Thompson’s appearance at a public accounts committee (PAC) session in October last year to discuss the Revenue’s Brexit project capacity.

While HMRC remains adamant that the Making Tax Digital (MTD) for VAT programme will remain on track, one tax expert stated that for other taxes it now seems that MTD could be a long way off.

Digital services for individuals

To release capacity for Brexit project work, HMRC’s statement announced it will delay plans to introduce further digital services for individuals.

“This means halting progress on simple assessment and real time tax code changes,” said the email. “The MTD for Individuals programme has made significant progress here, so we’ve laid foundations that will enable us to return to this in the future.”

According to the statement, additional services will now be added only where they reduce phone and post contact or deliver significant savings.

“We will pause work to digitise services that impact fewer numbers of customers, such as those paying Inheritance Tax, or applying for Tax Advantaged Venture Capital Schemes and PAYE settlement agreements,” continued the email.

“And as no new tax credits claims will be made after January 2019, we won’t move ahead with an online service for new tax credits claims. We will focus instead on improving the existing Tax Free Childcare system. And changes to the Child Benefit system will be limited to the underlying IT infrastructure.”

Simple assessment

The reorganisation includes halting the further rollout of simple assessment. Simple assessment was intended to take two million people out of self assessment and ease the Revenue’s workload, but HMRC has encountered a number of issues for taxpayers and problems for their tax agents, with taxpayers only being given 60 days to correct errors.

An HMRC spokesperson told AccountingWEB that the department will continue with its plans to take pensioners with state pensions just over their personal allowance, where that is their only source of income, out of self assessment in 2018 for the 17/18 tax year.

“In addition customers who have PAYE underpayments that we can’t automatically adjust each year, are now covered by simple assessment,” continued the spokesperson. “We are halting further roll out of simple assessment.”

Dynamic coding

Another project hit by the delays are the changes to the real time tax codes. Under the ‘dynamic coding’ system, potential underpayments are replaced with in-year adjustments. The tax codes are adjusted in-year to reflect changes in an employee’s circumstances as soon as HMRC becomes aware of the change.

However, this system was also hit with errors and issues. Yvette Nunn, co-chair of ATT’s technical steering group said that dynamic coding has caused some employees who have been paid a bonus early in the tax year, or who have uneven earnings, to receive an incorrect tax code which can lead to a tax overpayment.

According to reports, issues with the changes had actually driven more traffic to HMRC call centres – precisely the opposite of what the department had intended.

An HMRC spokesperson told AccountingWEB that the department introduced the PAYE real time tax code improvements in July 2017 and these are now fully business as usual in the way PAYE operates.

“We are still working to add additional improvements to our systems in 2018, which will substantially complete this work,” said the spokesperson. “Any further improvements will be revisited in the future.”

MTD for VAT: full steam ahead

One project that does currently remain on-timetable is the MTD for VAT mandation in 2019, for VAT-registered businesses with turnover above £85,000, with a limited pilot just launched in April. The statement also confirmed that HMRC will not mandate any further MTD for Business changes before 2020, at the earliest.

However, the convergence of business taxes from HMRC’s many legacy systems onto a new single system (ETMP) is set to slow. The Revenue stated this will not impact on the delivery of MTD.

News ‘not a huge surprise’

Reacting to the news Brian Palmer, tax policy lead at the AAT, commented that the reshuffle was “not a huge surprise”, given the fact that an organisation with 15 major transformation programmes and more than 260 projects with funding levels set in 2015 had then been landed with Brexit.

“A lot of these projects require complex human intervention to get started,” Palmer told AccountingWEB, “and although many of them are good ideas it will just take too much to get them over the line. HMRC is now really focusing on projects where they can show headcount reduction – call centre volumes etc – and demonstrate more bang for their buck.

“Back in his March 2015 Budget, George Osborne promised us the death of the tax return,” continued Palmer. “It seems that the demise of the self-assessment tax return has been greatly exaggerated, at least for the time being.”

For Andrew Hubbard, tax consultant at RSM, while MTD for VAT remains in place for 2019, for other taxes MTD could be a long way off.

“We know that it will not be introduced before 2020 but I would be very surprised if it did come in that early, given the need for proper pilot testing of any new systems,” said Hubbard. "Some form of MTD for business will still emerge, but I suspect that it could look very different to the very optimistic plans originally laid out only a couple of years ago”.

Yvette Nunn, co-chair of ATT’s technical steering group, stated that while the group welcomed the pause to these projects, it strongly urged HMRC “to use the extra time given to iron out the known problems with simple assessment and dynamic coding before they hit play on them again.”

Replies (49)

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By AnnAccountant
02nd May 2018 09:10

Absolutely nobody predicted this.....

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Replying to AnnAccountant:
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By DMBAcc
02nd May 2018 10:50

Thanks Anne. I had to chuckle

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By ireallyshouldknowthisbut
02nd May 2018 09:10

They have been back-peddling on MTD for some time this comes as no surprise to me its been in the long grass for some time.

It of course makes the VAT changes even more of a nonsense, a classic bridge to nowhere. Its a shame no-one has the guts to just pull the plug on that too rather than shambolically carrying on.

At least they have admitted what a colossal waste of time dynamic coding is. Of course no-one predicted that before it happened did that? Well apart from anyon who works in this area......I don't know why they bother with consultations when they don't listen to them.

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By 0098087
02nd May 2018 09:35

MtD dead in the water

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Replying to 0098087:
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By paul.gloverstanbury
02nd May 2018 10:07

Remembering 'Sink the Bismarck', will the equivalent of HMS Dorsetshire please step forward....

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By darrenwilliams
02nd May 2018 09:36

I wonder if this definitely also applies to companies/corporation tax ?

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By tapsalterie
02nd May 2018 09:47

Is it bad that this has made my day just knowing that HMRC's new systems have caused them as much aggro as it has caused us. Maybe now they will see the value of agents having full access to our clients information and stop pushing us out.

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By youngloch
02nd May 2018 10:12

In my opinion this is heading in one, perhaps logical, destination which will be that quarterly reporting under MTD would ultimately only apply to VAT registered businesses.

That would then mean that the data from the VAT submissions would be used to estimate the tax liability with the year end process then also being made via software.

MTD and quarterly reporting for businesses with a turnover below £85k has always been the one part of this that I felt was going to risk going out of control. Perhaps the risk of such an unrealistic strategy being rolled out is reducing - at least until technology and more widespread behaviour by people make that a logical development (people are certainly not there yet).

We've been migrating clients to the cloud now for 18 months starting with the largest and working our way down. However, we've done it for the right reasons and not because of MTD and I have to say that I am starting to see that the year end process for us is going to be easier than was the case previously.

All MTD has achieved so far in my opinion is to cause a lot of us an awful lot of stress and anxiety worrying about how on earth we would cope.

But it forced us to move forward towards the cloud and, actually, that's been a good thing.

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By RobertD
02nd May 2018 10:33

Lords Economic Affairs committee meeting 22 February 2017. Jim Harra was asked why HMRC was not prepared to give businesses more time to prepare for MTD, and replied he wanted to know what businesses would do with that extra time.

The answer with hindsight is wait for HMRC.

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Morph
By kevinringer
02nd May 2018 10:35

The problem with MTD is the digitisation of transactions: this is a requirement for MTDfV and MTDfB (or whatever the abbreviation is). This digitisation is what is going to take all the time and cost. If we're having to digitise transactions for MTDfV there won't be much more work to comply with MTDfB. There's no sense postponing MTDfB if HMRC are going to stick to the 2019 start date for MTDfV. HMRC needs to understand the huge cost to businesses in digitising their transactions and therefore postpone MTDfV. MTDfV is guaranteed not to work. HMRC's IT will collapse. Look at RTI: it's been in operation for 4 years but HMRC's IT still struggles.

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Morph
By kevinringer
02nd May 2018 10:38

I have some sympathy with HMRC re Brexit. 2 years ago we thought there wouldn't be a Brexit. Since then it's been "Brexit means Brexit". Literally yesterday they've started talking about a "single market partnership". We've got 10 months to go and we're no clearer what is happening so how can HMRC re-build their systems to cope? Therefore it is madness to plan to start MTDfV just a few weeks later. MTDfV needs postponing.

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Replying to kevinringer:
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By dgilmour51
02nd May 2018 11:22

kevinringer wrote:

I have some sympathy with HMRC re Brexit.


I have the same degree of sympathy that HMRC feel for me when circumstances screw me/my clients up -
to wit ... none whatsoever.
Galatians, 6:7 springs to mind.
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Replying to dgilmour51:
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By DMBAcc
02nd May 2018 14:27

Do like this espcially if read in the KJV - it has a sense of finality to it. I too am smiling from ear to ear, none less so than for my seasonal clients who wouldn't have a snowball in Hell's chance of completing quarterly returns in July/August - sheer madness. Decision makers all beavering away within the M25 probably don't even know where Cornwall is leave alone what a small business might look like in that same County or why so many have to be self employed in Cornwall. Jobs don't grow on trees down here.

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Replying to kevinringer:
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By Richard Webb
02nd May 2018 20:03

I would love to know what exactly MTD has to do with Brexit. I have the feeling that HMRC are just making up excuses because they have no idea exactly what is going to happen after 1 April 2019.

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Replying to Richard Webb:
Morph
By kevinringer
03rd May 2018 09:07

@Richard the answer is nothing. HMRC have 297 IT projects of which the biggest are Brexit and MTD but HMRC doesn't have the resources to deliver both. Brexit has a legal deadline therefore MTD is the one that will slip, and hopefully cancelled.

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By vstrad
02nd May 2018 10:52

Or why not take the opportunity presented by Brexit to scrap VAT and replace it with a much simpler sales tax?

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Replying to vstrad:
Morph
By kevinringer
02nd May 2018 11:07

VAT was a simple tax when it was launched in 1973 and look at what it has become.

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Replying to vstrad:
By ireallyshouldknowthisbut
02nd May 2018 11:09

Eh? VAT is what a 'simple' sales tax looks like in practice.

Any change would be a massive upheaval.

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Replying to vstrad:
Hallerud at Easter
By DJKL
02nd May 2018 12:57

Factor in a proposed major change in VAT into the discussions with the EU and see how much further off the rails the negotiations can wander.

Divergence may be possible from the rest of the EU post exit but even then it will not be straightforward and will need to be slow, trying it during the negotiations will kill all prospects of actually getting any deal, the negotiators would be searching for the black cat in the dark room that was not even there.

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By youngloch
02nd May 2018 10:55

..... God help us all if Brexit ends up getting scrapped too!

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Replying to youngloch:
Morph
By kevinringer
02nd May 2018 11:08

Here's hoping

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By Nick Graves
02nd May 2018 10:57

@Kevin:

That's probably because those living in the bubble are simply too dull to understand the difference between a customs union, the single market and what third-country status really entails and it's only now just dawning on them.

But we've finally got HMRC to admit (albeit tacitly) that the system is currently FUBAR and they cannot cope any more.

I do enjoy a large glass of schadenfreude with my morning coffee!

Ode to joy...

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Replying to Nick Graves:
Morph
By kevinringer
02nd May 2018 11:11

Nick Graves wrote:

@Kevin:

That's probably because those living in the bubble are simply too dull to understand the difference between a customs union, the single market and what third-country status really entails and it's only now just dawning on them.


But us voters needed to know this to make an informed decision before the referendum. We learned so much in the weeks and months following the vote that we should have known beforehand. Who had heard of the customs union before the vote?
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Replying to kevinringer:
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By dgilmour51
02nd May 2018 11:31

kevinringer wrote:

But us voters needed to know this to make an informed decision before the referendum. We learned so much in the weeks and months following the vote that we should have known beforehand. Who had heard of the customs union before the vote?


So you didn't know what you voted for?
Well, do we ever - look at the relationship between 'Manifestos' and the reality on the assumption of power!
Frankly, I cannot see how any rational professional could fail to understand the trade implications as well as the de-federation aspect.
'Third country status' is a denigratory aphorism espoused by our haughty French masters in their propaganda around the negotiations - merely indicating the enforced state of not concluding trade agreements outwith the constraints of the horrendous EU tariff walls.
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Replying to kevinringer:
By Nick Graves
02nd May 2018 17:45

That's what happens when they ask a stupid question for party reasons before national ones and then get the answer 42.

If they'd have asked a sensible question, the answer might have been more explicit.

So they've no-one but themselves to blame.

Likewise, there is a possible answer to the last 40 years of entanglement that might solve the Irish question and all the rules of origin and phytosanitary bureaucracy and might also sate both mild leavers and mild remainers (the EFTA/Norway+ slowly-reverse-out) but they're only just starting to notice there might be a problem.

I don't blame the voters for being lied to (right back to at least the early 1970s!)/and not understanding all the issues, either way. You'd have to be a right bloody anorak to understand the foregoing...

But I came to the conclusion a long time ago that politicians ought not to be trusted with crayons.

Hence it was a very good idea to stop them being able to fiddle with stuff they know nothing about, by tying them up in knots.

They wouldn't listen to sense over MTD and so a bit of peaceful civil disobedience has thrown a spanner in their works big time.

I wonder what else we can break..?

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Replying to Nick Graves:
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By DMBAcc
09th May 2018 18:19

Thanks Nick - you've made my day. I love the reference to crayons which gives me visions of my small grandchildren at play - not much difference there then.

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By BristolTaxGuy
02nd May 2018 11:04

The first good thing to come out of Brexit?

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By Ammie
02nd May 2018 11:08

HMRC missing a deadline?

Do they have a "reasonable excuse"? (remember work load is not one.)

Penalty?

Do as I say not as I do springs to mind.

Rest assured, more changes and relaxations to come if the current level of government efficiency is anything to go by.

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By davidbarry
02nd May 2018 11:23

So these are my questions.
Anything on property owners?
Limited companies ?
Voluntary VAT registered businesses where turnover is less than £85K?
Businesses exempt from VAT where turnover is more than £85K?

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Replying to davidbarry:
Morph
By kevinringer
02nd May 2018 11:51

I thought we knew some of these already. MTDfV applies to (1) all VAT registered businesses (2) with turnover over the VAT threshold therefore it does not apply to voluntary VAT registered businesses nor those exempt from VAT. It does apply to limited companies (and clubs, estates and trusts). It would apply to property owners if they meet (1) and (2) above but my guess is most of us won't have property clients that large.
MTDfB we know less about (as does HMRC!). At the moment I believe (I don't know, I'm guessing) it will apply to individuals and partnerships with turnover over the VAT threshold from some date from 2020 onwards. If an individual or partnership also has a property business, that property business will also be caught even if it by itself is below the VAT threshold. At some future date MTDfB will be extended to other entities. At some future date the turnover threshold will be lowered: HMRC's aspiration is £10,000. If HMRC get their way, MTDfB will eventually apply to all entities with turnover over £10,000.

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Replying to kevinringer:
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By davidbarry
02nd May 2018 12:16

Sorry, I just do not understand where you have got your information from. I have read everything and have seen nothing written on properties with partnerships/exempt businesses in excess of £85K or limited companies. Could you direct me please?
Question: What about a trading limited company whose directors also have property income outside of the company. Are they caught by MTD? Thank you.

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Replying to davidbarry:
Morph
By kevinringer
02nd May 2018 13:23

The combined turnover was in https://assets.publishing.service.gov.uk/government/uploads/system/uploa... point 7.30 page 56 and point d top of page 57. This was discussing the £10,000 turnover test: a self-employed individual with gross earnings of £8000 plus £4000 rent would be caught by MTD. Re trading limited company, see point 7.29 - I don't know what HMRC mean by this point. Maybe they are referring to IR35 type company?

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By Akrigg
02nd May 2018 11:44

Seeing these plans come crashing down is amusing.

Thinking about all the wasted time spent learning about & planning for MTD & SA - not quite as funny.

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Replying to Akrigg:
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By leon0001
02nd May 2018 12:51

Unlucky. - a lot of us recognised a slow motion car crash developing and acted accordingly.

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Replying to Akrigg:
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By DMBAcc
02nd May 2018 14:38

Yep just remember everyone £1.3bn of our hard earned taxes has gone into the pockets of private software and related companies. And did I hear right that one senior Civil Servant has left his post and joined one of these companies, or is that a melicious rumour someone has put about?

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By leon0001
02nd May 2018 12:11

Sorry Sir, Brexit ate my homework.

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By Peter-S
02nd May 2018 12:20

“We were overly ambitious about the number of customers who would stop contacting us by phone and post after we introduced digital channels. Demand is falling, but not by the amount assumed in 2015.”

Because they do not realise that online for everything isn't the perfect solution for everybody

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Replying to Peter-S:
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By DMBAcc
02nd May 2018 14:42

HMRC only think they are getting less calls because they have fewer people manning the phones. After 30 minutes waiting to get into the queue most of us give up and try later or just guess!!!!!!! (which with some responses I get I think I would do rather better)

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By Mr J Andrews
02nd May 2018 12:51

Freeing up HMRC staff ?
They must be down to single figures already with cuts to the bone in favour of moronic call centres.

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By Mr J Andrews
02nd May 2018 12:51

Freeing up HMRC staff ?
They must be down to single figures already with cuts to the bone in favour of moronic call centres.

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By North East Accountant
03rd May 2018 08:40

Don't write off MTD yet.

You don't need me to tell you about the tax system but a little reminder about back in 2006 when HMRC got details of 400,000 people with offshore bank accounts and only 10,000 were declared on Tax Returns. This lead to umpteen disclosure facilities starting with the Offshore Disclosure Facility in 2007, and the obtaining of information direct from various sources, eg. land registry.

It has taken HMRC 11 years to get to where we are with offshore income with minimum 100% penalties kicking in October 2018.

HMRC will go back to assessing tax using directly held information and once they get the interest, dividend income etc in, what are they missing - property, self employment etc. Hence the need for MTD.

Look at Capital Gains Tax going to be payable within 30 days of sale. HMRC will want the same for other income.

MTD may be delayed but IMHO it will happen.

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By Ammie
04th May 2018 09:18

MTD will happen, there is no doubt about that.

But it should have been set up in a more basic form with the online facility to deliver, and then fine tuned over a few years of trouble shooting.

Its initial form was far to optimistic and riddled with shortcomings, a naïve plan by HMRC. No surprise there.

Back to the drawing board lads and come back when you have a more sensible workable product.

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Replying to Ammie:
By Nick Graves
04th May 2018 11:00

Good idea.

I'll be 100 in 2063...

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