HMRC seeks to reassure MPs over switch to digital tax system

Treasury committee chair Andrew Tryie warns of "lack of detailed explanation" of how HMRC's Making Tax Digital plans will play out

By Civil Service World

03 Mar 2016

HM Revenue & Customs' move to a fully digital tax system by 2020 will be done "gradually", ministers have said, after the chair of the Treasury committee said taxpayers were "deeply concerned" about how the measures would work out in practice.

November's government-wide Spending Review saw the tax authority asked to make savings of 18% to its running costs by the end of the parliament, with savings expected to come from job cuts and office closures.

But the Treasury is allowing HMRC to plough £1.3bn back into digital services, in a bid to fundamentally change the way tax is administered.

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Under HMRC's "Maxing Tax Digital" plans, most business, including the self-employed and landlords, will be required to provide quarterly updates to HMRC from 2018, keep their records up-to-date with free online tools and apps created by the tax authority.

The Treasury has said it expects the digital shake-up to raise an additional £600m a year by the end of the parliament, because it will help HMRC to keep a better track of people's income, and it estimates that the changes will also cut businesses' own administrative costs by £400m.

But Andrew Tyrie, the Conservative chair of the commons Treasury committee said it was "hard to see" how that £400m figure had been calculated.

In a series of letters to Treasury minister David Gauke, Tyrie wrote: "It would be extremely surprising if such a huge aggregate saving, worth a lot to the individual businesses involved, had been overlooked by them. It would also be surprising if those who the government feel would benefit from changes to their record keeping had not spotted some of those gains."

Tyrie also said he believed there was a "lack of detailed explanation, readily available from the government, about how the proposals will be implemented", and warned that the switch to quarterly tax returns meant taxpayers would need much detail on how the system would work if it were to "achieve widespread acceptance".

The Conservative MP, who has chosen to publish his exchange of letters on line, acknowledged that the Making Tax Digital plans "may be a sensible direction of travel" for the "vast majority" of taxpayers.

"But there are some – for example, those who do not currently use computers or for whom quarterly reporting would be a substantial burden – who understandably remain very concerned about these proposals," he added.

"The government should consult widely before reaching any decisions on this. The requirement for all businesses to maintain a digital tax account needs to be tempered by provisions for those for whom this would be an unreasonable burden. Nor should an ambitious timetable be imposed at the expense of greater clarity for the millions of businesses these changes will affect."

Responding to Tyrie, Gauke sought to give reassurance that the new digital system would be phased in gradually, and not force taxpayers to make a sudden switch.

"Making Tax Digital is not about making people do four tax returns nor four sets of accounts a year; it is about bringing the tax system into the digital age, saving businesses time and money in the long run and
giving them more control of their tax affairs," he said.

"Complex and off-putting year-end returns will become a thing of the past. And it will unlock a number of other improvements, including the capability increasingly to tailor HMRC's communications with businesses, for example, about reliefs and allowances, and how they can make best use of them. 

"We are introducing these reforms gradually and [...] will be consulting on the details of the proposals throughout 2016. We will use volunteers to test the new tools and processes and
give us feedback. Quarterly updates will be introduced for some from 2018, and will be phased in fully by 2020, giving taxpayers time to adapt."

Gauke added that while the "overwhelming majority" of small business were using digital channels for tax, HMRC would provided "guidance and support" to those businesses reluctant to make the switch.

"They will also have options to use trusted others to help them, such as family members or the voluntary and community sector," he said.

"For those genuinely unable to adopt digital tools due to geography, personal disability or other circumstances other channels, such as telephone filing, will remain available. HMRC will consult on how to define this group and the services they will need. "

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