Making Tax Digital for Individuals delayed by Brexit redeploymentsby
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.”
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.”
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.”