UK200Group members react to HMRC’s digitisation of tax proposals

Members of the UK200Group of independent accountancy and law firms have shared their views on comments made by Theresa Middleton, HM Revenue & Customs director of Business Customer and Strategy, about the digitisation of tax.

Speaking exclusively to publication Accountancy, she said that HMRC had been clear all along that the quarterly update included in the proposals for digital tax accounts was “not designed to be the equivalent of a quarterly tax return.”

Theresa added that businesses would not need to do stock takes or make their capital allowances claims and other reliefs and adjustments on a quarterly basis, but suggested that some business may want to do that and that the department would be consulting on this issue.

She said that HMRC were “really keen to make sure that businesses are able to contribute to the shape of how we implement this.”

Mike Chapman, senior manager of corporate tax at UK200Group member firm Knill James Chartered Accountant, said:

“Both business taxpayers and tax professionals have reacted with alarm at the prospect of supplying current financial information online at least every three months by 2020. Even more disturbing is the clear intention that this information will be used to accelerate tax payment deadlines for unincorporated businesses, smaller companies and landlords.

“HM Revenue & Customs held a series of roadshows in January and February to discuss the plans with stakeholders, but by all accounts attendees left these events little the wiser. Given that the fair and efficient working of the proposed structure is dependent upon a big-ticket, properly integrated IT system, people would be justified in looking at the proposals with some scepticism.

“One only has to consider the £10bn NHS computerised records debacle of recent past to know that such massive changes are rarely implemented smoothly. Indeed, why should anyone trust HMRC to be able to achieve such lofty IT goals when the department has recently been publically criticised for a failure to answer phone calls in time.”

Andrew Jackson, head of tax at UK200Group member firm Fiander Tovell LLP:

“My impression is that HMRC have had an idea that they think would be excellent all round, and have been a bit dismayed at the level of opposition – which they are only just realising is based on facts that they hadn’t taken into account.

“The problem with having a bright new idea is that your proposal is only ever as good as the facts it’s based on. When you’re sure of your facts, it is easy to be sure that your idea is fantastic; but it is also easy to confuse your assumptions with facts. One might question assumptions, but if you think they’re facts then questioning them would appear pointless.

“In this case, HMRC’s proposals have been based on the idea that most businesses do their book-keeping in a more sophisticated fashion than they actually do; or if they don’t they would like to, would be better off if they did, and are only prevented by lack of knowledge and opportunity. That is, HMRC have assumed that comprehensive digital book-keeping is best practice, and a position that businesses either adopt or aspire to.

“What they are now realising is that in fact this is not the best position for many small businesses to be in, as the administrative burden would outweigh the business benefits. They are also realising that the tax position of partnerships, for example, can be much more complicated than the ideal small business they have assumed is the norm.

“I think that HMRC have therefore jumped in with almost-complete proposals that they were sure would be excellent, but which failed to take the real world into account. What the proposals now need is external input to ensure that the proposals are workable for taxpayers and deliver useful information to HMRC, across the whole range of actual businesses.

“The consultation process is therefore going to be crucial, and HMRC need to be ready to be flexible and adapt their model in the light of it. The model has good aspects and bad, and HMRC need to be ready to ditch the latter: what would be disastrous would be for HMRC to use the consultation to find justifications for the whole edifice, regardless of merit. They appear to be recognising this, which is very encouraging.”