On the first day of Christmas, my true love sent to me, a letter about MTD. Wendy Bradley has found 12 false assumptions to challenge about MTD.
It wasn't actually at Christmas but on 9 November 2018, or to me but from HMRC's Ruth Stanier to the House of Lords Economic Affairs Finance Bill Sub-Committee, but that really doesn't scan.
Gifts of MTD
Making Tax Digital (MTD), keeping digital records and uploading the required totals to HMRC four times a year, will become mandatory three days after Brexit. It's the mandation that's the problem. If HMRC had said "this is a better way: try it and see" we could live with it. It's supposedly an agile system, after all. But, no: mandation for MTD is – allegedly – the gift that keeps on giving.
Costs not savings
Stanier’s letter explains how HMRC calculate the administrative burden of MTD, now that it has moved away from saying there would be a net saving to businesses.
Apparently, the original "saving" came from the very smallest businesses. Those businesses under the VAT registration won't be mandated to join MTD in 2019, so won't feel the "benefits". Now MTD is estimated to cost those businesses mandated into MTD an aggregate total of £37 million a year.
How did HMRC work this out?
First it divided businesses into two categories - those which are in MTD for VAT versus the smallest businesses which are not. It then divided the VAT registered business category into those which use tax agents, and those who handle the VAT return in house.
Three business sizes are in the "in scope" category of the first segment: "small" businesses with 85k-10m turnover (1.15 million of them), 30k "medium" businesses with turnover between £10 and 200m, and 2.5k "large" businesses with turnover over £200m.
Those businesses are assumed to undergo four types of change to comply with MTD:
From paper-based record keeping to digital MTD
From spreadsheet to MTD filing via bridging software
From spreadsheet to full-on MTD enabled software
Those already using software which then introduces MTD compatibility.
Then there are six different set up costings, ("Transitional Software setup cost assumptions", table 2) from £126 for a business moving from a paper-based system to full-on MTD to a generous estimate of £19 in total for a business with a turnover of over £200 million with their VAT processes outsourced to their agent. The steady state burden estimate (ie what it will cost businesses year on year once they are up and running with MTD) is estimated at £30 per business. My favourite part of Stanier’s letter is the bit where HMRC adds on (or is it subtracts?) five per cent from the number it first thought of to adjust for "optimism bias".
There must be a dozen false or at least questionable assumptions in Stanier’s letter. A plum example: it will only take an hour to install and familiarise yourself with new software sufficiently to operate MTD.
There are nearly as many bad or at least mildly dodgy statistics, such as - the cost of software licenses maxes out at £120.
There are statistical sleights of hand, see table 1 where the estimate of £120 steady state costs for the very smallest businesses is averaged out with the nil and negligible burden on larger businesses to come to an average of £30 across the piece.
It’s all a fairytale. You are as likely to find ten Lords a Leaping in your Christmas stocking as you are to find mandation for MTD three working days after Brexit, surely?
To put it another way, we have, to the tune of Twelve Days of Christmas;,
12 false assumptions
11 bad statistics
10 sleights of hand
9 dodgy data
8 vanished savings
7 kinds of process
6 set up costings
FIVE PER CENT (optimism bias)
Four types of change
Three post-Brexit days
And mandation for MTD
About Wendy Bradley
Wendy Bradley is a retired tax inspector, now working as a freelance journalist.