Treasury committee urges more extensive digital tax pilots
Findings from parliamentary body back fresh approach to ‘Making Tax Digital’ plans, while maintaining calls for delayed implementation timetable
The government should establish a comprehensive series of pilots to better test its Making Tax Digital (MTD) plans before introducing a mandatory requirement for businesses to switch to electronic record management, according to new findings from parliament.
In its latest report on MTD, parliament’s Treasury Select Committee said that while it supports the digitisation of the tax reporting process, the overall benefits of mandating online record keeping and reporting each quarter are yet to be proven.
Under the scope of MTD, the department aims to create one of the world’s most digitally advanced tax administrations, by introducing a personalised service to allow taxpayers to send and receive information online. At present, the reforms are intended to be in place by 2020 as a direct replacement for the annual tax return.
The report backs changing the existing government approach to implementing digital tax services citing what it calls “insufficient engagement” with UK businesses that will have to rely on the digital systems to ensure potential concerns are being addressed.
“At present, many of those on whom demands from MTD will be made – millions of small businesses up and down the country: the backbone of the economy - are ill equipped to handle the reporting requirements,” noted the findings.
According to the committee, suggestions for this new approach to MTD include a delayed implementation timetable as well as the abandonment of plans for an initial threshold of £10,000.
“The committee has yet to see evidence strong enough to justify a threshold below the VAT threshold, £83,000. It may exist, but the government needs to assemble and publish it,” said the findings.
In backing a number of comprehensive pilots for the proposed MTD system to protect against future potential error, the committee said that little information had so far been provided on a series of user tests already undertaken by HM Revenue and Customs (HMRC).
Concerns were raised that businesses participating in these existing pilots had done so at the invitation of HMRC, meaning that the voices of other companies and potential experiences they might have with the technology will not be heard. A wider scope for testing was therefore encouraged.
“The 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 and Parliament needs to see the evidence that this has been done,” said the findings.
Concerns were also noted over the need for a government plan to ensure the availability of appropriate and affordable software, including free programmes for smaller and less complex business.
Committee chair and MP Andrew Tyrie said that it was anticipated that digital tax records and reporting was anticipated to have benefits for the administration of payments if “carefully introduced”, yet he also warned about the negative implications for a failure to properly plan.
“Without sufficient care, MTD could be a disaster. Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, Making Tax Digital could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither,” said Tyrie.
In September last year, Tyrie wrote a letter to Chancellor Philip Hammond welcoming publication of a series of consultations on tax digitisation, but calling for a wide number of responses and view before moving forward with implementation.
He argued at the time that a potential delay to introducing MTD may be required to allow for the more thorough consultation of a number of key issues, as well as introducing pilot projects to better understand customer needs before the digital tax service becomes mandatory.