The House of Commons Treasury Committee have published a report recommending that HMRC change their approach to Making Tax Digital (MTD).
The Treasury Committee is a cross party group of MPs responsible for examining the expenditure, administration and policy of HMRC and the Treasury.
In their report the Treasury Committee recommend that:
- The timetable for implementing MTD be delayed until at least 2019/20 to allow more time for consultation and engagement.
- The proposed threshold of £10,000 be raised to at least the VAT threshold (currently £83,000).
- A comprehensive set of pilots need to be designed to gather information over the entire reporting cycle: four quarterly updates and an end of year reconciliation. These need to be evaluated before full implementation andf the proposed system before it becomes mandatory.
- HMRC ensure that adequate free software is available for the smallest businesses. There is not yet a 'fully functioning market in appropriate software'.
Their Chairman, Rt Hon. Andrew Tyrie MP says that, if carefully introduced, MTD could be an opportunity to greatly improve the administration of the tax system. However, without sufficient care it could be a ‘disaster’. He points out, 'This is not a minor matter. These reforms will affect millions of taxpayers. Their co-operation and trust are both hard won and easily dissipated. Without them, more of the yield could be at risk than any putative extra revenue from MTD. So the Government should change its current approach.'
As you may have noted in our editorial to this week's SME Tax web-update, one of our key bug-bears with MTD is the fact that although the concept of MTD is a fine one, the reality is that software and Apps simply don't do what we would like them to do.
In this month’s Tax Adviser magazine (journal of the CIOT and ATT), Chris Mattos tested manual bookkeeping v. Excel v. an App. You will all be able to guess the outcome: the spreadsheet was fastest and handwriting was faster than using a phone App. The App suffered difficulties with auto-recognition. We know that most invoice scanning companies get around the auto-recognition issues by using cheap labour in India to check and correct. In other words, it is easier to use a bookkeeper with a spreadsheet that fool around with a phone. Large parts of the UK still don't have superfast broadband and lots of people don't use smart phones either. Even more people have difficulties with spreadsheets and it is difficult to see how they will ever embrace Apps or software.
We’ve been testing popular accounting software for the last two years and results are disappointing. Bank feeds go wrong and then legers won't balance. It is difficult to adjust and correct and requires seemingly endless amounts of checking. Even moving MTD back to 2019/20 seems unrealistic at this point in time.
Our guide: Making Tax Digital: index
The full Treasury Committee report can be found here.