The problem with 'Making tax digital'
The government has launched ‘Making tax digital’, outlining its long-term play to digitise the UK tax system. But its ambitions could be too much for small businesses to cope with.
Since the Chancellor’s announcement in March heralding the death of the tax return, HMRC has received a £1.3bn boost to make his digital dream a reality. “This government is bringing the digital revolution to Whitehall – ensuring that the services it provides are similarly transformed. The tax system is no exception,” wrote Treasury secretary David Gauke in the introduction to the latest policy paper.
AccountingWEB member Steve12321 responded in terms that will be very familiar to small business owners and their accountants: “How is it better to have to produce accounts and calculate tax four times a year instead of once?”
He’s not the only person asking the same question. “If you have to update quarterly what will the deadline be? We’re almost going to give the information in real time. It will be impossible to run business because you will always be reporting to HMRC,” said Rebecca Benneyworth.
“Businesses won’t be able to cope. There’s essentially going to be four self assessment deadlines”, continued Benneyworth. “That’s going to be horrific, especially if we lay the existing penalty regime on top of it.” [NB: Since making these comments Benneyworth has been named as HMRC’s lead consultant on digital for small businesses - see below, Ed]
Accountant and tax campaigner Richard Murphy also bristled at HMRC’s perceived misunderstanding of accounting. “What HMRC seems to think is that accounting is just an exercise in totting up the books,” Murphy wrote.
“It’s assembling the data to populate the return that takes all the time. HMRC’s claims utterly ignore that fact and want to increase the time-consuming part of the job fourfold. That they do not seemingly understand this is deeply troubling.”
Not all of AccountingWEB’s members were negative, though. “Once it comes in and becomes second nature, I think it might be a positive,” wrote Cstwragby. “Clients will HAVE to give us their records once a quarter rather than this nightmare every December and January chasing up disorganised people to bring in their records.”
“It’s still self assessment,” said SteLacca, referring to page 10 of the ‘Making tax digital’ document, which reads: “Of course, taxpayers will still be responsible for ensuring that their tax bills are right and telling HMRC about information that is not reported through other means. But digital accounts will make this much easier, quicker and simpler.”
On behalf of the software trade body BASDA, chairman Kevin Hart responded: “Yesterday’s document both consolidates numerous separate pieces of information that have entered the public domain and confirmed speculation in the industry with regard to timeframe. It is, however, rather light on detail, such as how the many complexities of tax are to be addressed.”
Hart added that one of BASDA’s primary aims will be to balance the department’s aspirations with the regulatory burden it imposes on the tax/accounting software industry and its customers.
Personal tax accounts
Ahead of the digital strategy paper, HMRC launched the trial version of its newly renamed personal tax account (PTA) on 1 December. The system relies on the GOV.UK Verify identity management system to control access to the system. Verify uses third party companies like Verizon, Experian, the Post Office and a Dutch company called Digidentity to verify the identity of the user.
Set-up is supposed to take 10 minutes, but that flies out of the window as the user faces a series of tricky questions, some not answerable off-hand. In the case of Digidentity, the user needs to download an app to their smartphone.
The service is certainly secure. Steve Checkley, director at TaxCalc, observed on TaxCalc's blog: “The nature of the hoops that I had to jump through would suggest that it could only have been me that was trying to gain access to the account.”
But the worry is that many accountants’ clients could find Verify too difficult to navigate. “Despite providing my passport details, address details, bank account and credit card details, the Experian software also wanted answers to ‘lifestyle’ queries such as my mobile phone supplier/contract,” wrote Hugo Fair on Any Answers. “Not only does this feel invidious… but it brought my attempt to register to a dead end as I’ve never possessed a mobile phone.”
Gauke told delegates at the HMRC stakeholder conference on Monday: “By 2020 HMRC will be a world-leading tax administration that is efficient, effective and easier for customers to use, enabled by £1.3bn of extra investment announced in November’s Autumn Statement.”
HMRC may be ready for its digital revolution, but many normal Britons might not be.