The CIOT has responded to the House of Commons Public Accounts Committee (PAC) inquiry into Progress with Making Tax Digital. In summary, the CIOT comments and recommendations are as follows:
The CIOT agrees that, in principle, digitalisation offers the best way to improve the efficiency and effectiveness of the tax system, improve HMRC’s performance, and enable them to provide better support for taxpayers trying to do the right thing. However, it should be allowed to grow organically, with systems created that are attractive enough that businesses choose to migrate to them, as has happened with online filing more widely.
The failure to properly consult on Making Tax Digital (MTD) has resulted in delays, scope changes, and widespread resistance to its requirements which many consider unnecessary or unduly onerous. It is crucial to follow a comprehensive tax consultation process, which ensures that tax policy can be developed collaboratively with the support of taxpayers, their agents, and software companies. Without proper consultation, a significant ‘policy gap’ will continue between government requirements and practical possibility within the designated timeframe.
The CIOT believes that the decision in December 2022 to delay and adjust MTD should have gone beyond its current scope. While the commitment to consulting on the needs of smaller businesses is appreciated, the government should also consult on the fundamentals of MTD. It is not apparent that the ‘business case’ for MTD, to the extent that it existed in 2015, still exists.
In the absence of such consultation, HMRC and the government need to act upon the feedback they have already received, as well as wider research. Some of the key ‘pillars’ of MTD for Income Tax Self-Assessment (ITSA), such as quarterly reporting and the End of Period Statement, may no longer be suitable. Instead, the focus should shift towards improving accuracy in digital records through prompts and nudges and improving guidance.
In any event, notwithstanding the deferral, the revised timetable remains extremely challenging. Major limitations within HMRC (which have always existed), such as being able to facilitate multiple agents for the same tax, must be overcome. Significant design elements such as reporting for jointly owned property are still to be determined. And large-scale testing of a full cycle of obligations must be undertaken.
The CIOT recommends that the government should also undertake an in-depth evaluation of MTD for VAT, involving real business data. Currently, there is a lack of compelling data to demonstrate that MTD is indeed reducing the tax gap and delivering efficiencies for businesses. Until this is available, progressing with MTD for ITSA, with its associated costs for taxpayers, agents and HMRC, seems imprudent.
The CIOT has responded to the House of Commons Public Accounts Committee (PAC) inquiry into Progress with Making Tax Digital. In summary, the CIOT comments and recommendations are as follows:
The CIOT agrees that, in principle, digitalisation offers the best way to improve the efficiency and effectiveness of the tax system, improve HMRC’s performance, and enable them to provide better support for taxpayers trying to do the right thing. However, it should be allowed to grow organically, with systems created that are attractive enough that businesses choose to migrate to them, as has happened with online filing more widely.
The failure to properly consult on Making Tax Digital (MTD) has resulted in delays, scope changes, and widespread resistance to its requirements which many consider unnecessary or unduly onerous. It is crucial to follow a comprehensive tax consultation process, which ensures that tax policy can be developed collaboratively with the support of taxpayers, their agents, and software companies. Without proper consultation, a significant ‘policy gap’ will continue between government requirements and practical possibility within the designated timeframe.
The CIOT believes that the decision in December 2022 to delay and adjust MTD should have gone beyond its current scope. While the commitment to consulting on the needs of smaller businesses is appreciated, the government should also consult on the fundamentals of MTD. It is not apparent that the ‘business case’ for MTD, to the extent that it existed in 2015, still exists.
In the absence of such consultation, HMRC and the government need to act upon the feedback they have already received, as well as wider research. Some of the key ‘pillars’ of MTD for Income Tax Self-Assessment (ITSA), such as quarterly reporting and the End of Period Statement, may no longer be suitable. Instead, the focus should shift towards improving accuracy in digital records through prompts and nudges and improving guidance.
In any event, notwithstanding the deferral, the revised timetable remains extremely challenging. Major limitations within HMRC (which have always existed), such as being able to facilitate multiple agents for the same tax, must be overcome. Significant design elements such as reporting for jointly owned property are still to be determined. And large-scale testing of a full cycle of obligations must be undertaken.
The CIOT recommends that the government should also undertake an in-depth evaluation of MTD for VAT, involving real business data. Currently, there is a lack of compelling data to demonstrate that MTD is indeed reducing the tax gap and delivering efficiencies for businesses. Until this is available, progressing with MTD for ITSA, with its associated costs for taxpayers, agents and HMRC, seems imprudent.
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