Treasury Committee
House of Commons, Committee Office 14 Toth ill Street, London SW1 H 9NB
Tel 020 7219 5769 Fax 020 7219 2069 Email [email protected] Website www _parliament.uk/treascom
Rt Hon Philip Hammond MP
Chancellor of the Exchequer
HM Treasury
1 Horse Guards Road
London SWlA 2HQ
15 September 2016
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Remit for HM Revenue & Customs 2016-17: Making Tax Digital
Thank you for sending me a copy of your letter of 31 August to Jon Thompson and
Edward Troup. Among other things, you are asking HMRC to deliver Making Tax
Digital (MTD) and to bring forward legislation for Finance Bill 2017.
The immediate reaction from many commentators in August had been one of relief at
the fact that the much-trailed consultation papers on MTD had finally been issued and
that there were some concessions from the Government.
Last week, the Treasury Committee heard initial evidence from businesses, expressing a
good deal of concern about MTD. More may emerge over the coming weeks, as
businesses digest the huge amount of detail in the consultation papers. Some of the
issues already put to the Committee in that evidence, or to me, include:
• At first sight, it was a relief to read that many businesses already transact with
HMRC digitally for VAT and corporation tax. However, the detail makes clear
that the new requirement for digital record keeping and reporting is far more
than simply entering a handful of totals (which could come easily from paper or
an Excel spreadsheet) into an online VAT return. It is tantamount to prescription
by HMRC, for the first time, of a particular form in which accounting records
· must be maintained.
• The proposal for free digital tools for the smallest businesses with the simplest
affairs was welcome. But views can only be formed when there is more
information on what will be available, to whom or for what type or level of
income and for how long its free availability can be assured. The software
industry, the government and the small business sector will have different, and
competing, objectives in defining this.
• The consultation papers do not make clear how the quarterly updates will align
with Universal Credit monthly updates, which will also be needed from the low
paid.
• There will be an exemption for people whose income is less than £10,000. But
this is below the level of the Personal Allowance. So it appears that this
concession will only be for those who do not pay tax, including new businesses
who would otherwise be obliged by MTD to notify HMRC within four months
of starting a business. In such cases, there would be no benefit, to the businesses
or to HMRC, if they were to submit quarterly reports.
• Those businesses with a turnover ofjust over £ 10,000 (and with profits of far less
than £10,000) will be hardest hit if they are obliged to change their working
practices; those who currently employ a book-keeper once a year to prepare their
tax return might find themselves having to employ the book-keeper four times a
year. This could be very burdensome.
The Treasury and HMRC will need carefully to consider all the comments that you
receive. Given the length of the consultation papers and the complexity of the issues,
many of those comments may well not be received much before the closing date of 7
November. Legislating in Finance Bill 2017 means that there will be little time for further
development of the proposals between the end of the consultation and the normal date
for the publication of draft Finance Bill clauses, around the end of November.
MTD may improve the customer experience for a growing number of people who are
able to engage digitally. For example, so called 'nudges an<l prompts', if designed
properly, could make dealing with HMRC a less intimidating experience; it could
provide the facility of 'what if scenarios to give businesses certainty about the tax
consequences of their decisions. Implemented carefully, it could do some good. But it
could also do much harm.
The consultation is therefore crucial. It needs to be meaningful. There may be a case for
delaying the implementation of MTD. A year's extension for an unspecified group of
businesses may not be enough.
There may also be merit in piloting the systems. From this, the lessons from customers'
experiences can be learnt, and well before digital reporting is made mandatory.
HMRC's proposals are major changes. There remains considerable cause for concern
with the proposals. Better to get it right than to stick to a rigid timetable.
I will be placing this letter, and your reply in due course, into the public domain.
RT HON ANDREW TYRIE MP
CHAIRMAN OF THE TREASURY COMMITTEE