UK publishes digital tax regime consultation, but Brexit casts a shadow
- Summary:
- The UK's progress towards a digital tax regime takes another step forward with the publication of consultation documents on the plans. But will Brexit throw a spanner in the works?
The UK government’s plans for a Digital Tax regime have been given more meat on their bones with the publication of six consultation documents for comment.
The documents relates to Her Majesty’s Revenue and Customs (HMRC) Making Tax Digital program, which is intended to digitize the tax system across the UK.
Edward Troup, executive chair, HMRC, says:
Making Tax Digital represents very significant change. It will bring the tax system into the 21st century and help make HMRC one of the most digitally-advanced tax administrations in the world. Going digital will abolish the annual tax return as we know it by 2020, replacing it with a personalised digital service through which taxpayers will be able to send and receive information to HMRC at the click of a button. There is still a lot to design and develop, and it’s important that we do this hand-in-hand with our customers and their representatives; these consultations are the next step in this process.
The consultation documents make for interesting reading, with some surprising concessions. Most notably, those who cannot go digital will not be required to do so. HMRC also proposes that 1.3 million small business will not have to keep digital records.
Jane Ellison, financial secretary to the Treasury, says:
We are committed to a transparent and accessible tax system fit for the digital age, and Making Tax Digital is at the heart of these plans. This new system will make the UK’s tax administration more efficient and straightforward, and will offer businesses greater clarity when it comes to paying their tax bills. By replacing the annual tax return with simple, digital updates, businesses will be able to concentrate on putting people and profit, not paperwork, first.
The documents on Making Tax Digital look at:
- Making Tax Digital: Bringing Business Tax Into the Digital Age – how digital record keeping and regular updates should operate including exemptions.
- Business Income Tax: Simplifying Tax for Unincorporated Businesses – changing how the self-employed map accounting periods onto the tax year (basis period reform); extending cash basis accounting; reducing reporting requirements; and reducing the need to distinguish between capital and revenue for businesses using cash basis accounting.
- Business Income Tax: Simplified Cash Basis for Unincorporated Property Businesses - the extension of cash basis accounting to landlords.
- Making Tax Digital: Voluntary Pay As You Go – options for business customers covered by the requirement for digital record-keeping to make and manage their voluntary payments.
- Making Tax Digital: Tax Administration – covering aspects of the tax administration framework that need to change to support Making Tax Digital.
- Making Tax Digital: Transforming the tax system through the better use of information – focusing on how HMRC will make better use of the information we currently receive from third parties to provide a more transparent service for customers that reduces end of year underpayments and overpayments.
There could be Brexit complications around all this, warns Jason Piper, tax and business law manager at ACCA (the Association of Chartered Certified Accountants):
As we trawl through the pages looking for further detail, one thing becomes painfully clear. The delay to the process resulting from the EU Referendum and ensuing Brexit-inspired chaos hasn’t just compressed an already ambitious timetable to a point where many of the most respected voices in UK tax have publicly expressed serious doubts about its viability. The decision for the UK to leave the EU has an even more fundamental impact on the proposals, and one which has not been addressed.
Piper also queries how the new digital regime will be policed in terms of penalities for those who don’t meet the requirements:
The penalty regime for tax has always been driven by return deadlines, with fixed “drop dead” trigger points built into the timetable. But under Making Tax Digital (MTD), the initiative formerly known as “Death of the Tax Return”, that anchor point for the process disappears. What’s worse, the penalty regime will need to recognise and take into account the intentions and technical capabilities of those who’ve failed to report properly. In short, the whole basis of compliance promotion will have to be revisited.
Up until 24 June, there was one tiny ray of sunshine in this, a small island of stability to which taxpayers and their advisers could cling. VAT is an EU tax, and EU law demands that a return be submitted. With that fixed point from which to hang the penalty framework, there would be no need to revise the volumes of law and precedent governing taxpayers obligations to file for VAT. The Brexit vote throws all of this into confusion.
My take
With the imminent departure of HMRC’s Chief Digital Officer and extensions on offer to outsourcing firms already incumbent as part of the Aspire program, the stakes are high in all aspects of the shift towards a digital tax regime. These consultation documents make for interesting reading and worthy of a lot of consideration by all interested parties.