MTD does not reduce errors
Nearly 90% of businesses and agents have rejected HMRC’s claim that MTD for VAT reduces errors, in a new survey which finds HMRC's digital project failing to live up to its promises.
Making Tax Digital was sold on the idea it would make tax easier for agents and businesses but the majority of respondents (90%) in a new ATT and CIOT survey think differently: 70% haven’t seen accounting errors reduce, while the remaining survey respondents have actually seen errors increase.
MTD for VAT compliance has also hit pockets more than originally anticipated with 45% of respondents forking out between £109 and £500 on costs, which is above average transition cost estimate of £109 per VAT-registered business, while 12% have even seen costs soar over £5,000.
Ongoing, 54% of respondents expect the annual costs to settle between £43 and £500, and for 20% that number could even land between £500 and £1000, which exceeds the government’s estimate of £43 per year.
The survey also found that these extra costs have not exactly translated into an increase in productivity. Only 14% experienced an MTD productivity boost, while it had the opposite effect for 55% who saw productivity drop in their organisation and for 51% for their clients.
The initial results from the joint survey contradict the government's claims that MTD for VAT would ‘make tax easier’ and reduce the tax gap, and nor does it abate concerns from the project’s most vocal critics that digital reporting does not benefit businesses.
The CIOT and the ATT are using the survey results to call for a comprehensive review of the roll-out of MTD for VAT before HMRC extends its scope.
“MTD for VAT has so far created additional, costly obligations for most businesses beyond what was predicted by HMRC,” said Tina Riches, chair of the joint CIOT and ATT digitalisation and agent services committee. “The results suggest there is a very long way to go to achieve the benefits claimed by the government about MTD for VAT.”
Riches recognised the significant benefits appropriate software brings when it is used properly and to the businesses needs but says the survey demonstrates that “MTD is not currently delivering those benefits to businesses, nor likely to reduce the tax gap”.
MTD takes its toll on agents
Agents are the ones who have taken the digital flak both in time and costs to ensure businesses meet MTD requirements. The survey found 56% of agents needed to help three-quarters of their clients move to digital record keeping. But for many, the task doesn’t stop there: 48% anticipate three-quarters of their clients requiring ongoing help filing VAT returns.
AccountingWEB has reported the toll MTD has taken on accountants’ stress levels. One anonymous accountant felt overburdened by long working hours and strain of MTD that they had a breakdown and their doctor told them to retire.
But the survey also unearthed the cost MTD has had to agents, with 70% reporting unrecoverable time and costs of over £100 for each client within the scope of MTD for VAT.
Riches commended agents for helping their clients comply but considers the costs borne by agents as “unacceptable and unsustainable”.
“A truncated pilot, issues with the Agent Services Account, and dealing with large numbers of teething problems are key contributors to this, as well as limits to the support that clients are willing and able to pay for,” said Riches.
A vocal proportion of AccountingWEB readers have raised concern about the digital project throughout its existence. A recent thread on the forum repeated these concerns when a reader’s decision to voluntarily adopt MTD for VAT was met with the typical responses of “Not sure what benefit it offers” and “Why would you want to join MTD before you need to? Wait until all - well, most - of the bugs in the system have been sorted out.”
MTD beyond VAT
Since April 2019, VAT-registered businesses with a taxable turnover above the VAT threshold have submitted their VAT returns using MTD-compatible software. But plans for MTD to roll out for other taxes have been put on ice for the meanwhile.
Unsurprisingly, the majority (74%) of respondents thought mandating MTD for income tax shouldn’t come any time soon, preferring instead for voluntarily VAT-registered businesses to be the next stage.
Considering the difficulty businesses and agents have expressed in this survey, Riches envisages an MTD for income tax roll out for “those less digitally capable” than VAT businesses as “much more complex”. She added, “Taxpayers will require significant training and ongoing support, and we are concerned that their agents, the tax charities and HMRC, simply will not be able to cope.”
An HMRC spokesperson told AccountingWEB that it welcomes the views of members of the accountancy profession: “MTD for VAT is still in its first year and we completely understand that some businesses and their agents will need time to get used to the new system.
“We appreciate that while there are free products available, some businesses will have incurred software and training costs, but MTD’s enabling of digital records linked to HMRC’s systems will help to free up valuable time.”
News that MTD for VAT has done little to stamp out errors comes as a blow to HMRC who predicated the need for digital record-keeping on achieving just that.
Shortly after the then Chancellor George Osborne announced the death of the tax return in the spring Budget 2015, the government initially dubbed the project ‘Making Tax Easier’. It initially promised to “make it easier for individuals and businesses to get their tax right and keep on top of their affairs’, in addition to reducing the tax gap and reducing avoidable errors.
The tax bodies conducted the survey throughout December 2019 and January 2020 and had a total of 1,091 responses from businesses and agents.
*The article has been updated to include a comment from HMRC.