This is an experiment by HMRC to test whether digital prompts would encourage traders to review their VAT returns before submission, and hence reduce the errors in the return. The first stage of the trial ran for a year from September 2018, and the next stage is beginning now.
HMRC selected a random group of VAT-registered traders for the trial. We don’t know how many were selected but it must have been a sizeable number. The traders weren’t told that they were taking part in this experiment.
Half of the group saw a checkbox when they (or their agent) submitted their VAT return through the HMRC online portal, which asked the trader to agree with this statement: “I can confirm that I have checked that the calculations used to produce these figures are honest and accurate.” It was not possible to continue with filing the VAT return until this box was ticked.
The remaining traders in the selected group acted as a control population and did not see any additional messages while submitting their VAT return.
In early September 2018, members of AccountingWEB noticed that some of their clients’ online VAT returns had this new checkbox, but other VAT returns did not. The wording of the confirmation statement caused some confusion and amusement. What exactly could HMRC mean by “honest” in this context?
Other tax agents were more concerned that by completing the confirmation statement their firm, or even the individual staff member who submitted the VAT return, could be held responsible for the client’s figures.
Heather Langtree of HMRC responded to these concerns raised on the Agents’ Forum, saying the upfront honest declaration carried no weight in law, and that completion of upfront honesty declaration box would not be taken into account for compliance purposes during the trial. Langtree also confirmed: “No account is taken of the upfront honesty declaration if a return is found to contain errors, whether submitted by an agent or an unrepresented customer.”
The upfront honesty box declaration deemed to be a success by HMRC, as it resulted in an additional £235m of VAT being declared as payable by the traders on the first occasion they were asked to confirm the calculations were correct, compared to the control group.
However, the effectiveness of the honesty box prompt diminished over time. The second time the traders saw the statement an additional £95m of VAT was declared. By the third and fourth times traders saw the honesty prompt message there was no tax effect at all.
HMRC will now introduce the honesty box declaration for the remaining group of traders that comprised the control for the first year of the trial and didn’t see the message.
However, at present, the honesty prompt can only be included on the old HMRC portal (government gateway) for submitting VAT returns. Thus, traders who have moved over to MTD for VAT filing won’t see it.
This means the experiment will not be truly reflected with the control group as it will be a far smaller population, made up of traders who are voluntarily registered for VAT and hence do not have to file via MTD.
HMRC is exploring how it can introduce the honesty prompt, and similar pre-submission nudge messages, into the VAT filing under MTD. However, such flexible nudge messages would have to be delivered via commercial software, and this may need a change in the regulations to require the software providers to do this.