The Director of Making Tax Digital (MTD) at HM Revenue & Customs (HMRC) has warned that “not all taxpayers are ready for a digitalised tax system.”

Roy Wallace spoke with the Institute of Chartered Accountants in England and Wales (ICAEW), to address the implementation of the new digital tax system after HMRC was criticised by the Public House Committee, who said that “it is not clear that Making Tax Digital will help reduce the tax gap”.

Members of the Parliamentary committee said: “The Making Tax Digital programme is a logical plan in a world where more and more activity is carried out digitally, but it will impose extra, and possibly unreasonable, costs on some individual taxpayers and small businesses, and may be disproportionate to the gain to HMRC,”

Furthermore, it is expected that some of these businesses, “may be less able to afford the changes since COVID-19.” 

In his talk with the ICAEW, Mr Wallace said that “the Coronavirus pandemic’s impact on the uptake of digital technologies has helped to strengthen the case for MTD” but he admitted that unpreparedness is still a problem for some taxpayers.

His comments come as the tax authority looks to introduce the next phase of MTD which, from 1 April 2022, will require all VAT-registered companies to switch to the MTD for VAT system that is currently in place, regardless of their turnover.

A year later self-employed businesses and landlords with annual business or property income above £10,000 will need to report and record income tax digitally, from their next accounting period starting on 6 April 2023. 

Mr Wallace said that HMRC couldn’t be “complacent about costs, nor be cavalier in our attitude towards businesses transitioning to MTD,” because for those within scope the new system still represents ‘significant change’.

He added that many businesses and individuals would need help to transition to the new system and that for some it wouldn’t be easy.

Long-term ambitions and the role of agents

Clearly, to encourage taxpayers to engage with the system, the system needs to be easy to engage with.

With this in mind, long term ambitions of HMRC’s are to see every taxpayer enjoy access to a ‘single’ account through which both personal and business tax can be managed, and to improve the experience of engaging with the administration system for agents acting on behalf of their clients.

As with everything though, this will be a process and not a particularly swift one; though, it has been slated as a priority by Wallace.

Emma Wilsher, Chartered Accountant, comments: “The hope is that digital tax administration will become part of the ‘normal business processes’ and allow for more planning opportunities with greater awareness of projected tax bills being a key outcome.

“In our experience, whilst digitalisation might appear daunting at first, the additional benefits, especially in these unusual times, have countered this initial uncertainty.”

How can George Hay help?

Whenever we’ve talked about Making Tax Digital previously, we have always been upfront about the direction in which the project is travelling and encouraged our clients to consider the benefits of embracing cloud accounting software sooner, rather than later.

If you’re one of the businesses who has voluntarily made the switch, then you are undoubtedly at an advantage as we consider how the programme is likely to develop in the next two to three years.

If you haven’t yet made a place for digital tools and software within your business, now that we have an insight into HMRC’s plans for the future of the tax system, it could be a good time to begin to explore your options and consider how you might accommodate changing administrative requirements.

To discuss your circumstances in more detail with one of our friendly professionals, proficient in assisting businesses with the transition to online accounting software, please contact us today.

Link: Digital tax system must be inclusive

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