Making Tax Digital
Despite assurances that the digitisation of tax reporting is going to be straightforward and simple it is likely that the process will prove time consuming, costly, worrying and turn out to be a burden on many for little, if any, value in the short term. While the digitisation of tax is an idea with much potential and is undoubtedly the future there is currently considerable unease that implementation is being driven by short term expediency and the requirement to meet deadlines rather than by long term effectiveness. Recently the Chairman of the Treasury Select Committee expressed concern over the burden the move would place on taxpayers.
Making Tax Easier to Making Tax Digital (MTD)
The fact that the initiative has quickly been re-branded from its original ‘Making Tax Easier’ to ‘Making Tax Digital’ (MTD) suggests that this concern is not without foundation.
Digital tax accounts are broad in their implication because they include pre-populating self-assessment returns, quarterly tax reporting by businesses and individuals, tax on-line, and an anti-money laundering service.
Pre-populating the self-assessment return with information known to HMRC is potentially useful as long as there is a standard protocol for the organisations providing accurate information and that HMRC enters the correct information in practice. At present banks and listed companies appear to have no obligations to accurately report interest or dividends paid in the tax year in a standard format. Furthermore, HMRC’s past performance is far from encouraging and the facility to change incorrect figures has yet to be configured. Where income originates from outside the UK/EU or, indeed, originates from non-investment or savings sources taxpayers will still be required to provide or amend figures themselves.
This would not be so much of an issue if tax agents could access the data and there has been considerable speculation over the last few months that HMRC is trying to cut out agents to the detriment of both taxpayers and their agents. It would be crucial for tax agents to have access to HMRC systems in advance of MTD being rolled out if it is to work properly.
It is therefore noteworthy that important clarification has recently been provided by HMRC’s ‘Talking Points’ webinar which set out HMRC’s position on agent access to client data on HMRC’s systems and of the developments expected in 2016/17.
It is now anticipated that information held in clients’ digital tax accounts will be available to agents only through using commercial software; it is very unlikely that there will be a web-based service. HMRC’s strategy is to provide data via Application Data Interfaces (or APIs) and commercial software rather than by introducing digital accounts for agents.
HMRC also intends to introduce an option allowing tax agents to send messages and information to it online securely. HMRC acknowledges that while the technological solution to allow this is straightforward, it needs to reorganise its staffing to have the correct structure in place. That is understandable because otherwise there is a risk that poor post and call handling issues are replaced by delays in dealing with information provided electronically.
To access their new digital tax accounts taxpayers will need to endure a tedious process of registration. This includes having their identity verified by an approved third party. Some tax agents who participated in the testing process thought that it was complicated, time consuming and required too much information. Since one of the top reasons taxpayers engage tax agents is to deal with the ‘hassle factor’, the participating tax agents expected only 10% of their clients to register. That would be a poor take up rate if correct.
HMRC is still in consultation on digital tax accounts though the consultation is to be delayed until after the EU referendum on 23rd June. Concerns have consequently been raised that the delay could compress the consultation process given that beta tests for the proposed quarterly system are scheduled to commence in July. A consequence of this delay is that several consultations are likely to be issued at the same time with simultaneous deadlines to maintain HMRC’s deadline of public testing by April 2017.
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