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The slow ascent up Mt Digital

23rd May 2016

"All revenue bodies," reads an OECD forum on tax administration white paper, "are confronted with the goals of making it easier for taxpayers to comply with law (i.e. reducing their compliance burden), improving taxpayers’ compliance and increasing administrative efficiency."

Without knowing it, the OECD described the professed aim of  Making Tax Digital, the government's frustratingly elusive, epochal tax transformation. 

We don't know much about MTD. That's not a stunning admission, perhaps; the information drip from Whitehall has been but a slender trickle.

We know that the consultation documents are ready but will only be released in July, after the Brexit referendum's purdah is lifted.

We also know some fundamentals like: HMRC will gradually introduce quarterly reporting from April 2018 onward for income tax and NI, culminating in April 2020 when everyone (from corporation to landlord) will report quarterly.

That's largely it. But as frustrating as it is, there is another way we can attempt to make sense of digital taxation.

The UK isn’t the first country to move to a digital tax system. Other countries have already - some quite a while ago, in fact - made the daring trek up Mount Digital.

What do we know about the countries' tax administrations and what does it mean in practice? 

Let's look at three examples:

Denmark, Australia and the United States

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Replies (7)

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By johnjenkins
27th May 2016 11:24

Brilliant article Francois. Two things that stick out like a sore thumb. The first - these countries have been doing it for years so they've had the pitfalls. The second and really more important - Billions being written off due to a technical fault. What chance HMRC??????????

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By Paul Soper
27th May 2016 11:55

On e aspect of digital filing which seems not to be commented on (yet) in the UK, but which is certainly hinted at here, is the greater degree of disclosure required from companies - to pre-populate a return or a digital account with details of dividends and interest it is clearly necessary to add dividend disclosure to the existing CT61 mechanism as far as interest is concerned and for this information to be provided digitally too. I suspect a nasty surprise for some small companies...

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By coolmanwithbeard
27th May 2016 11:57

Great article but actually Australia is very similar to us Goods and Services Tax (GST) is simply their name for VAT and we can submit that electronically now (direct from desktop QuickBooks) with an annual tax return presumably covering year end accounts. We cannot assume that the Australians submit business accounts quarterly.

I do like the idea of the information that is available being made available (who doesn't appreciate dividend data feeds from the commercial software providers) and we need more of that - but given that state pension data we can access is no more than the start of year estimate we have a long way to go.

We are going to need to take a position on things that are currently annual now such as stock takes. Capital allowances could work quarterly but a good AIA claim is likely to result in a refund!

Just some thoughts

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Replying to coolmanwithbeard:
By playtime38
27th May 2016 12:40

All the bas return is the gst paid and the gst recovered and the net balance is what is paid. This has to be reconciled with annual accounts at end of year and just as well ato does not require accounts for tax because the clients on prop software debit hp instalments and the like to the cost of the asset instead of off hp account and without calculation of interest - it is usually a mess and net profit would always be 50% wide of the mark. but the instalments of gst and paye submitted quarterly is much better for fiscus and the client to manage tax payments. Also included in qtly instalments is a thing called pay as you go (not as you earn) which is like provisional tax levied on last years tax payable marked up by 10% and split into quarters - tough on the third year into business unless your accountants insists on you giving and estimate.

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Replying to coolmanwithbeard:
By playtime38
27th May 2016 12:52

But the best system I have ever seen is Zimbabwe - yes Zimbabwe of trillion dollar banknotes fame if you mind. There because the president does not care if all businessmen leave the country tax is on a sensible Dec year end like usa (too bad for the stocktakers working all night on new years eve instead of dancing) What you do there is put your balance sheet and pnl on first col of spreadsheet, then you divide that into 12 cols and pay the tax on each month to be lodged and paid by 7th of month subsequent, If it varies with sales then adjust and have a good reason for doing so. Every business must buy a machine (like a fax special purpose only) and every invoice and receipt made out must be sent direct to tax office where is it digitally collated. What a magnificent system.

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By sengaprior
27th May 2016 14:23

It would be interesting to know what timescale these countries used from conception to implementation and if it was a gradual/staged process.

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Replying to sengaprior:
By playtime38
28th May 2016 23:05

Australia took about a year to explain 1999 to June 2000, but most of that was explaining how gst worked - there are many exemptions on food medical education and the like which makes working out much more complicated, unlike New Zealand where gst is on everything. Zimbabwe I dont know, but I do know that they asked the ato for help. and the ato must have advised them of the rolls royce system where politics had not impact on the design????

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