Two influential Parliamentary committees have questioned the Government’s timetable for MTD and the lack of a contingency plan.
Andrew Tyrie MP, chairman of the Treasury Select Committee (TSC) has taken a keen interest in the Government’s MTD proposals.
In October 2016, tax, accountancy and small business experts provided evidence to the TSC about the potential costs and savings expected to be generated by MTD. At that hearing Mike Cherry, policy director of the FSB, suggested that MTD would cost businesses £2,770. When challenged on this figure at the Hardman lecture, Jim Harra director of HMRC, said he would go back to the drawing board if MTD costs small businesses that amount.
Following the TSC hearing Tyrie wrote to the Chancellor on 27 October asking for a fully costed impact assessment of MTD, and a full pilot of MTD before its introduction. On 18 November Tyrie received a reply from Jane Ellison, the Chief Secretary to the Treasury, who has responsibility for HMRC. Ellison reiterated that HMRC expected businesses to make savings from MTD of between £85m and £250m per year.
Ellison also said that an initial pilot of MTD started in October 2016 with 1000 businesses. A second pilot will begin in April 2017 covering 400,000 businesses over a variety of trade sectors and geographical areas.
Tyrie wasn’t satisfied by this reply as he responded on 29 November, querying whether there is enough time to fully consult on the legislation which will underpin MTD. In precise terms Tyrie reminded Ellison that the Government has committed to abiding by the Tax Policy Framework under which “draft clauses for the Finance Bill will be published for scrutiny at least three months before the Bill is introduced to Parliament”.
The draft clauses for Finance Bill 2017 were published yesterday, but these did not include provisions relating to MTD, as the 5200 plus consultation responses are still being analysed. The overview to the draft Finance Bill 2017 states (at para 6.1) that responses to all 6 MTD consultations together with draft Finance Bill 2017 legislation will be published in January 2017.
The final draft of Finance Bill 2017 is expected to be introduced to Parliament shortly after the Spring 2017 Budget. Unless this happens in April 2017, that timing will breech the 3-month rule for consultations under the tax policy framework.
As the Smith and Williamson newsletter noted, “Deviations from the tax policy framework tend to be reserved for anti-avoidance measures required to tackle losses in Exchequer revenue.”
The Public Accounts Committee (PAC) undertakes an annual review of HMRC’s performance. In its latest report looking at the department’s activities in the year to 31 March 2016 the PAC identifies areas of concern relating to customer service. In particular, the PAC is not convinced that HMRC has a credible plan to make savings without damaging customer service and calls for urgent action to address this.
It warns that HMRC “is staking a great deal on the success of its plans to digitise the tax system, but once again it lacks an adequate plan if demand for its call centres does not reduce as quickly as it hopes”.
The PAC notes HMRC’s assurances that it will seek additional resources if digital services do not reduce demand for personal tax services in line with its expectations. But adds: “We are concerned that it has not agreed a contingency plan for this eventuality with HM Treasury.” In other words there is no Plan B for MTD.