MTD minister talks VAT and tax strategy

Mel Stride
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Financial Secretary to the Treasury Mel Stride spoke to AccountingWEB about the decision to delay MTD, his life in business, the VAT threshold and his vision for the future of HMRC.

Stride was promoted to FST and Paymaster General following the snap election in June, when previous incumbent Jane Ellison lost her seat.

One of his first actions in the post was to announce that the government’s flagship Making Tax Digital (MTD) project would be delayed by two years to 2020 at the earliest for taxes other than VAT.

“Whilst the direction was and still is absolutely right, the pace of change is something I was concerned with,” said Stride. “Through working closely with stakeholders and listening to what they were saying, I took the decision to ease that pressure off and bring it in in a more manageable timeframe.”

Despite his status as a new minister, Stride said he felt his business background allowed him to push for the delay in spite of the significant financial consequences of rowing back on the policy.

Before his election to Parliament in 2010, Stride founded and ran an events company, which he expanded to America before selling the US operation.

Wait and see on MTD

When discussing the next phase of the MTD project, including bringing income tax and corporation tax into the fold after 2020, Stride was a little more circumspect.

“We’ll have to see,” he said. “It’s my ambition that in April 2019 we’re going to roll out MTD for those above the VAT threshold, but what we’ve said is that come April 2020 that’s the earliest we may bring in income tax and corporation tax changes.

“I’m confident from the early signs of engagement that we’re heading in the right direction, but I do want to make sure that we’re in the right place before we press the button on that.”

Additional help required

According to research released by HMRC this week, 72% of 2,900 small businesses and landlords anticipate consulting an accountant for help meeting the MTD digital reporting requirements, with 40% asking for more clarity and guidance on how to prepare for the new regulations.

“What I’m keen to ensure, and I know HMRC are as well, is that we are there to help companies,” said Stride. “We have to communicate what it is that we’re expecting companies to do at the various points we take those decisions, but at the same time we are there to support them through that process.”

Stride reiterated that one of the main drivers behind the MTD scheme is the government’s wish to eliminate the tax gap, currently estimated at around £34bn, £9bn of which it believes is down to taxpayer error.

However, HMRC's recent research also found that 98% of respondents were confident that the information they provided to the tax authority was correct.

VAT threshold

The pre-Budget rumour mill was awash with stories about a possible drop in the VAT registration threshold of £85,000, particularly following the release of the OTS report on VAT simplification that considered a drop to £26,000. Stride confirmed that while a reduction was considered, he felt it was not the right time to make such a move.

“As with all taxes and thresholds we’re constantly looking at them,” he said. “I think there are certainly arguments for lowering that threshold, particularly when you look at other countries like Spain where there is no threshold at all, or Germany where it’s around £16,000.

“However, I think we took the right decision, which was to freeze it for the next couple of years and nothing further than that, given the pressures that small companies are under and therefore not wanting to bring more into the VAT regime.”

Stride did, however, confirm that longer term it’s something the government will continue to keep under review.

HMRC not a ‘monolithic digital beast’

While Making Tax Digital may represent the Treasury’s current focus in terms of change, where does Stride see the direction of travel in the future, and how fast will any subsequent changes be made?

“HMRC itself is undergoing a major transformation at the moment, and what that is partly about is how as an organisation we interface with the business community and individuals about their tax,” said Stride.

“This means shifting away from paper and telephone interaction, and to do more digitally. This is good for everybody because it’s more efficient. People get quicker answers to their questions, and the accuracy of that interaction is improved.

“So my vision for HMRC going forwards is not some kind of monolithic digital beast, but a responsive and nimble digital interface with customers, whether they be individuals or businesses.”


*This article was amended to clarify the correct tax gap figure*

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have a story that might interest us or wish to comment on the site's coverage get in touch via the site's private message function or Twitter DM (@AWebTom)


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13th Dec 2017 10:10

Seems like they are very softly rolling MTD over the hill and into the very long grass.

Its how big projects get cancelled. Very very very slowly.

Its a shame he believes the tax gap lie with no evidence to support the theory that increased reporting burden = increased tax take.

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13th Dec 2017 10:11

"there are certainly arguments for lowering that threshold, particularly when you look at other countries like Spain where there is no threshold at all"

..... or alternatively Minister (and applying just a sprinkling of common sense ?)

"there are certainly arguments for increasing that £0 threshold, particularly when you look at other countries like the UK where the threshold is £85000"

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13th Dec 2017 10:13

Sounds like common sense to me. I agree MTD is the right direction but I’d probably want to slow it down even further or make it optional for a longer period.

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13th Dec 2017 10:25

Very interesting, but nothing we didn't already know. I'm a great believer in zero threshold for VAT, but no vat calculations for business, only Joe public (That's what vat was intended for in the first place). It's never going to happen though. 2 years time is when it all comes together and we will know what's what. Speculation will be rife. My own opinion is that MTD will never work because it is based on a myth.

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to johnjenkins
13th Dec 2017 16:30

I agree totally. MTD is a trendy name with the backing of people who do not know how to prepare a set of accounts...bit like most HMRC staff. When they start using email I might change my mind.

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By Ammie
13th Dec 2017 10:29

A sensible start. Best they spend some resources on examining the small business and how practically they can fit in with their plans.
VAT threshold at £26,000. Now that's an interesting one! Why do I sense they are rearranging their policies to push as many small self employed businesses into PAYE.
Fine, but have they considered employers are also in business and that includes small businesses, the "bread and butter" of the economy.
Time will tell.

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13th Dec 2017 10:39

Zero VAT threshold?

They really are hell-bent on making it impossible for anyone to start a small business as a sideline, these Statists.

Hmm, what we really need is the unemployment rate of Spain. Along with the economic success of Venezuela...

Have these people never heard of Richard Cobden?

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to Nick Graves
13th Dec 2017 11:38

VAT was originally intended for Joe public and not business. So I don't see any reason for a threshold for business (apart from it bringing in lots of dosh). RC the founder of the EU. He would be turning in his grave now.

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By djn24
13th Dec 2017 10:46

"Stride reiterated that one of the main drivers behind the MTD scheme is the government’s wish to eliminate the tax gap, currently estimated at around £9bn, a proportion of which it believes is down to taxpayer error".

How do they expect to close the tax gap? Are all businesses suddenly going to start including all sales on qtrly basis when they didn't include them before. I don't think so.

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13th Dec 2017 11:02

My problem with going digital is that agents need to be able to access the same information as our clients. We have less access to information now than we have ever had. The personal tax accounts are all well and good but not many of my clients manage the process of setting them up, yet alone understand the information. So much of my time is being taken up explaining to clients what they need to do in order to get me the information. My older clients are having to come into the office while I set the up the account for them just so that I can access what I need. Previously I would call HMRC.
Clients engage an accountant because they want us to deal with everything for them. I just wish HMRC would recognise this.

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to tapsalterie
13th Dec 2017 11:42

I have heard that HMRC are looking very seriously at the need for Agents to have access to tax payers software. Maybe they have realised that the tax payer won't be able to "DIY" under MTD.

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13th Dec 2017 11:14

A deep VAT threshold cut when inflation is just announced at 3.1%, would be guaranteed to increase the charges levied by the newly registered. It would contribute to the spike in inflation, so I guess the judgement was that it was best left until it politically more acceptable.

MTD on the other hand is not really one solution to going digital. A one property owning landlord is not the same as a building subcontractor, as an example. The former really is an investor in a sideline, whereas the latter has this as the main income stream. The landlord will be far more affected by the strictures of MTD than someone who is already complying with RTI, CIS and online VAT. VAT first is a sensible option, to be followed up by more sensible steps where established businesses can be used to test the requirements long before the sole property owning landlords get anywhere near RTI.

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13th Dec 2017 11:20

As a practice dedicated to the hospitality sector, my issue is less with the VAT threshold but that we should make the charging of VAT compulsory.
Outlets that are not VAT registered have an advantage over those that are registered. In other parts of the world ‘sales tax’ is added to bills without an issue.

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By pippa
13th Dec 2017 11:20

Strikes me a lot of the small self employed folk work directly for Joe Public, add 20% to everything and that’s a sizeable bite added to the cost of living.

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13th Dec 2017 11:32

From what I see, until post March 2019, HM Government will have more than enough on, simply trying to steady the ship away from the EU.

Until HMRC become fit for purpose, which presently they are not, MTD is simply an elephant in the room. IMHO.

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13th Dec 2017 11:48

To be applauded . The guy has gone and realised the issues for the profession and acted decisively . Lets hope his business background enables him to fully understand the issues and difficulites MTD will bring to small business and those not conversant with IT ... and those who do not even use a computer , have email or access to the internet . If it gets delayed further due to the previous administration's over eagerness to provide that stupid boy George Osbournce a legacy then good - lets do it properly .

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By Tornado
13th Dec 2017 12:45

It would be madness to continue with the plan to introduce mandatory MTD for VAT in April 2019. I think the Government are still way out of touch with the reality of hundreds of thousands of businesses trying to set up and run MTD compliant software by April 2019, particularly when much of that software does not yet exist, let alone tested.

In addition, that software will be required to deal with every possible aspect of VAT, changes related to Brexit and changes that the EU are making to the way that VAT is administered within the EU and for those trading with the EU.

It seems to me that there is a distinct possibility that Mel may find his tax revenues dwindling as the country grapples with all of these changes at the same time. I hope he has significant reserves of funds to deal with this potential crisis otherwise he will not be able to pay the Country's bills!

Far better, of course, to introduce MTD for VAT (and MTD in general) in a more organised way over a longer period of time.

I think it is about time to scrap the HMRC lead on this and set up a committee of stakeholders who can come up with a more sensible approach to MTD. After all, those in Government are there to serve us and not tell us what is best for us.

It is just common sense really.

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to Tornado
13th Dec 2017 13:48

From what was said in the post it may well be that MTD will be postponed again or very slowly brought in. The real problem is the 1/4 "updates". The only way to do this would be to have every business vat registered (effectively zero threshold). Exciting times?

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to Tornado
19th Dec 2017 14:35

Well said. Most accountants understand this and want to assist business with getting on with business.

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13th Dec 2017 13:58

The problem with MTD is the digitisation of transactions. MTD for VAT requires digitisation so MTD WILL start in 2019 and not 2020 as HMRC are saying. I agree it will "only" be MTD for VAT but the problem is the digitisation of transactions whether VAT or SA.

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13th Dec 2017 15:37

I've only got two digital words to say about MTD. "Exterminate" "Exterminate".

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13th Dec 2017 15:52

Thank you "Tornado" for once again putting in writing exactly what I think about the whole MTD affair. Having recently listened to the HMRC team leader unable, even unwilling, to respond to a question about the tax gap that I posed at the IFA Autumn Conference, I am more than ever convinced that HMRC's reasoning for the implementation of MTD is totally without foundation. They are following Government diktat without questioning the evidence.

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13th Dec 2017 17:31

"Shifting away from paper and telephone, and doing more things digitally"

Anyone who has tried to get HMRC to answer the phone or respond to a letter might think they've already abandoned those more traditional methods of communication.

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13th Dec 2017 19:14

Stride by name . Let's hope it's stride by nature.
Rather than the hitherto mindless lemming approach of attempting to introduce too much unworkable, impractical theories too quickly , let's also hope that Mel has learned from the house of Osborn and that his business record will mean continuing to talk to, rather than talking at, those affected by whatever the next round of MTD throws up [sic}.

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14th Dec 2017 11:44

VAT always was and is an iniquitous tax, introduced by Traitor Heath to align with what was then the EEC. Heath's moronic justification was VAT would replace Purchase Tax: which was only ever levied on high value NEW luxury goods and never, second-hand items.

Heath also waffled " One simple tax one low rate!"

I wish!

VAT is purely and simply a tax on a man/woman's labour.

If the threshold were reduced to Zero, then this was cause a massive hike in the cost of living, which would currently (and in the foreseeable future) be unsustainable.

At present, we have seen many start-up clients, particularly artisans, have to face hiking their end prices by 20% overnight; which has made them hugely uncompetitive and seriously impacted their ability to remain tenable.

It is therefore no wonder, so many plumbers and similar, take cash and thereby become tax evaders!

In France, where I spend much time, those working "on the black" are numerous...

Once again, the lowest echelon of the SME community (which is the life blood of the UK's real economy: and Government's own published stats support this) are a convenient target for idiot delusional ministers.

No wonder the core EU states suffer such high levels of unemployment.

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By dlp2008
15th Dec 2017 12:18

Tax gap- cashless society, simple

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to dlp2008
15th Dec 2017 12:47

What tax gap? Oh yes the one HMRC made up to justify their incompetance.

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16th Dec 2017 13:10

"MTD scheme is the government’s wish to eliminate the tax gap, currently estimated at around £34bn, £9bn of which it believes is down to taxpayer error" but genuine errors work both ways so improving the accuracy is not going to close the tax gap.
HRMC have the enquiry procedure for SA and in my 35 years in practice I would say all the tax they have ever collected from all my enquiries put together is less than £1000. This is 0.003% of all the tax my clients have paid over the last 35 years. I've spoken to other agents with the same experience. Where does HMRC get its figures from because they don't agree with the experience of me and other agents I know.

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By Tornado
to kevinringer
16th Dec 2017 14:14

Broadly, my experience agrees with yours but I think the tax gap (not convinced HMRC really knows how much this is) has arisen due to the relentless obsession that Government have in by-passing Agents and trying to deal with taxpayers directly.

I suspect that most of us know exactly where taxes are being evaded, if not explicitly but probably intuitively, but this will be nothing to do with our own clients who will do as advised by us or they become ex-clients.

Such promotions as "Tax needn't be taxing" have encouraged people to do-it-themselves, but in the main, with minimal understanding of Tax, they are inevitably not going to understand much of what they are required to do. With a virtual lollipop offered at each successful stage of the completion process whether the information entered is complete fabrication or not, there is no real warning that it is actually really important to complete the form correctly.

I am sure that some people skip sections simply because they do not understand what is being asked of them and just assume that this does not apply to them.

Yes, let us face it, people can enter almost any amounts they like in their do-it-themselves Tax Returns and there will be only a slim chance of errors (deliberate or otherwise) being picked up.

I happen to think that Self-Assessment is an excellent system of Tax administration. The main fault with it is that HMRC are incompetent at running it. If the 1300 million pounds allocated to MTD were instead spent on improving the current SA system, we would certainly have a world beating system with minimal disruption to current procedures.

The Tax Gap is self inflicted by the Government and they just need to use some common sense about how to deal with this instead of making the situation more complex with fantasy projects such as MTD.

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to Tornado
17th Dec 2017 07:30

Tornado wrote:

The Tax Gap is self inflicted by the Government and they just need to use some common sense about how to deal with this instead of making the situation more complex with fantasy projects such as MTD.

"Self inflicted" - absolutely.
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19th Dec 2017 15:28

Just a little update. there are "operational changes" going on. Quite what that means I'm not sure, but if Mel wants us to read between the lines then perhaps our dogged opposition to being sidelined will bear fruit.

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