Senior tax partners have agreed with MPs’ call for further clarification around the effectiveness and main objectives of Making Tax Digital (MTD) ahead of the 2022-23 rollout.
“It’s not unreasonable to say that the effectiveness isn’t known, purely because it’s such as new initiative and it hasn’t taken off in the way it was anticipated,” says Juliet Bailey, indirect tax partner at Mazars.
“When this was first talked about years ago, there was an expectation that businesses would start to digitalise everything and HMRC would have absolute visibility of all their records. This just isn’t what’s happened yet. Businesses are just reporting the nine boxes of the VAT return digitally, often to an API in a spreadsheet,” she adds.
From April 2022, MTD will be applied to all VAT registered businesses with turnover below the VAT threshold. The rule will also come into force in 2023 for taxpayers filing income tax self-assessment tax returns for businesses or property within income over £10,000 annually.
In the Public Accounts Committee’s publication, MPs have highlighted that the reduction of the tax gap caused by error, as well as the improvement of compliance rates, business productivity, and enable HMRC to realise savings, could not be proven at this stage. They also stressed the extra cost that MTD could be imposing on small businesses and taxpayers – that could also be disproportionate to the gain of HMRC.
Andrew Constable, tax partner at Moore Kingston Smith, believes MTD’s goals lack clarity and could bring further difficulty for businesses.
“It’s not at all clear that complying with MTD reduces errors. Some businesses have perfectly good systems in place. Changing or tweaking those systems isn’t necessarily going to give them any benefit in terms of accuracy,” he says. “For other businesses, forcing them to adopt a new software programme for the first time might increase error because of having to get used to it.”
Whether HMRC has the needed visibility as to when it retrieves that data and information also comes as a real concern whilst they might not necessarily have the tools and resources to analyse it, according to Bailey.
“This does lead to the question of whether HMRC are digital enough themselves as an organisation because we’ve seen immense difficulties during coronavirus. We’ve seen many forms in which they are not capable of electronic submission” she says.
What’s more, the adoption of MTD could also come as a burden for businesses looking to cut down on costs.
In January, the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) published results of a conducted survey which revealed that the costs of MTD compliance were far from the initial government estimates. HMRC calculated the costs to be £109 per VAT-registered businesses, but nearly half of respondents from the study said costs were estimated between £109-£500 whilst 12 percent measured the cost at above £5,000.
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Although costs will vary from business to business, Bailey adds that for those with an overseas parent or using old software, MTD compliance will be made more complex as it could require a complete change of the business’ accounting system.
Constable says pushing back the 2022 date would make MTD more efficient.
“It makes sense for them to pause mandating and allow businesses to join when it makes administrative and commercial sense for them to do so.”
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