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Accountancy group warns HMRC over Making Tax Digital

16/11/16

Association claims department fails to understand demands on business from increasing flow of real time information in tax system

An accountancy association has warned that HM Revenue & Customs’ (HMRC) Making Tax Digital (MTD) programme is running on too short a timescale and will impose a burden on businesses forced to adopt new accounting systems software.

UK200Group, which claims 150 member offices of independent chartered accountants and law firms, has announced its reservations after taking part in the consultation on the programme to develop the tax system for the digital age.

It indicates a degree of discontent from the business world with the plans, which will include new day-to-day reporting requirements for businesses.

The group said it agrees there can be great benefits the effort to step up the digitisation of tax, but that it has concerns on a number of points. These include:

  • HMRC’s timescale for implementation, set for 2020, is too short for full consideration and resolution of the issues.
  • The principle of self-assessment and the relationship between HMRC and taxpayers will be fundamentally changed.
  • HMRC is making the mistake of regarding tax as the primary purpose of businesses’ accounts.
  • Taxpayers’ appetite to engage with MTD is small, as they see few benefits to offset the costs.
  • Their ability to engage has been overestimated.

As a response, the group recommended a number of measures. These include setting up digital tax accounts now, providing a central place for taxpayers see the information that HMRC holds on them, and a mechanism to provide the department with information simply and automatically.

Another step would be to consult taxpayers on the future design of the tax system, to make the simplification of accounting optional and for tax purposes only, and to identify clear benefits for taxpayers.

Software demand

One of the key elements of MTD is that businesses will be expected to use software accounting systems that record day-to-day transactions, categorise them into different types of income and feed back to HMRC.

Andrew Jackson, head of tax at UK200Group (pictured), said: “HMRC officials think that getting small business to use accounting systems will reduce errors, and if people are making fewer errors they should have a more accurate idea of how their businesses are performing. That’s got to be a good thing.

Andrew Jackson“However, they don’t seem to appreciate why people aren’t using accounting systems at the moment. I think what they’ve failed to identify is that business people aren’t doing it now because of the cost of implementing an accounting system.

“This isn’t just financial, but includes the time and effort spent learning how to use it and keeping it up to date. It’s not just a case of putting a few numbers in various boxes – it takes a whole new set of skills to use these programs properly.

“This is going to affect small businesses more than it affects larger ones because the overheads for setting up accountancy system are going to remain broadly the same, regardless of turnover.”

When HMRC announced the programme late last year, David Gauke, then financial secretary to the Treasury, said it is aimed at collecting an additional £1 billion of tax by 2020-21. It places an emphasis on increasing the use of real time information, reducing the need for businesses and individuals to file returns and being able to check their tax through digital accounts.

 

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