Making Tax Digital may not make it easier for everyone.

What do you think:

  • Doing tax returns on line is a breeze?
  • No need to worry because your accountant does it all?
  • Perhaps you might need to tell HMRC if digital tax is going to be difficult?

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Her Majesty’s Revenue and Customs (HMRC) is planning a new approach that should end all that form filling each year to tell them about what you’ve earned, received in interest and other income so that your tax can be worked out.    By getting regular information from employers, banks and building societies, they will have lots of the information already so that you just need to add anything extra – and all this will be possible through a computer or smart phone – meaning that you can see at any time what you might need to pay in tax.  Self-employed people and businesses will also have a better and up-to-date idea of their tax situation by sending HMRC regular information and getting their own tax forecasts –again, all possible on-line.

You can read about their proposals in a series of consultation documents.  I recommend “Better use of information” for anyone and “Simplifying tax for unincorporated businesses” and “Bringing business tax in to the digital age” for those running their own businesses –they give examples of how the new system will work. There are other documents too for those who want to look at more detail.

But sending and getting financial and tax information on-line may not suit everyone – especially if using computers or smart phones is difficult because of a disability or other circumstances so it is worth checking out their proposals and telling HMRC what you like and what you don’t.  You can send comments to them until 7 November 2016 by e-mailing:  processtransformation.mtd@hmrc.gsi.gov.uk.

Below are the comments I have sent in – if you are short of time, feel free to use any of this in your own response.

Overview:  The concept of MTD has many merits but the paucity of equality (and especially disability) considerations places the initiative at risk.  It is not clear how current proposals and potential law will satisfy the judgement in Bishop & Others v HMRC Commissioners [2013] 522 UKFTT).  If these changes don’t work for “ordinary working class people”, the Department will undermine the Prime Minister’s statements and, probably more importantly, fail to produce the increased tax, lower costs and public endorsement needed.

The following comments relate to the principles of five of the 6 MTD consultation documents (plus some comments on delivery detail).

  1. Better use of information.

Principles.  It is very surprising that HMRC has already concluded that MTD will not have “a significant or disproportionate impact” on people with protected characteristics when the Department has neither undertaken an equality impact assessment nor specifically asked questions about such in any of the consultation papers.

The stated percentage of people with access to digital tools is without reference to the source data or context and appears, wholly erroneously, to be linked with whether customers are digitally excluded.  While the MTD principles are sound, they are substantially undermined by the lack of data and detail about those customers who will encounter most difficulties (for whatever reason) in adopting MTD.  In this post-Brexit fragile economy, giving high priority to those most likely to be disadvantaged is likely to improve the system for all and make better political, social and economic sense.

While increasing numbers of people have access to digital devices, many avoid using such in relation to their finances due to the very high level of on-line fraud.  HMRC needs to present a stronger description of the security measures before such is convincing.  Likewise, personal security of passwords and security codes is increasingly risky as people now have so many – security alternatives or guidance on secure storage using IT should be available.  Ideally, customers should have one code for all interactions with Government.

Delivery detail.  Frequent system-generated prompts have a high risk of being ignored by customers who have to separately find and enter passwords/security codes just to discover information of little value/action. Customers should be able to switch off prompts except those requiring action to comply with the law but with options to receive prompts that are to their benefit, for information etc.  Many will not want any contact unless something has gone wrong.

Third party information (including that from other Government Departments) should always include specific account details and payment dates, percentages attributable to joint account holders and should be in the standard format contained in their own Equality Act-compliant notifications to customers to facilitate checking by those customers.  Employees should be able to confirm that current NI is being paid by their employers.

Obviously MTD requires testing with various adaptive soft and hard ware of varying vintages across the full spectrum of broadband speeds.  On-line instructions and guidance should be capable of downloading in various formats (e.g. large print from a Word document) for ease of referral.  Use of on-line links and text boxes can be difficult with some adaptive software.  For some people, transferring a security code to a screen text box will be very difficult – the option to receive via e-mail should be available.  Digital tax account displays should be very simple and accessible with all types of adaptive software.

HMRC must also utilise the same short-cut key strokes as Microsoft e.g. Control P to print – otherwise, they would be requiring those using such with adaptive software to learn yet another keyboard “language”.

  1. Simplifying tax for uninc businesses.

Universal Credit (UC) is mentioned in this document (and elsewhere) but full implementation  may be subject to further delays hence MTD should take account of interactions with Working Tax Credits, Housing Benefit, ESA “permitted work”, New Enterprise Allowance, potentially Access To Work and possibly other benefits/payments.  The proposals would be significantly strengthened by DWP and HMRC commitments regarding payment reporting and timescales both before and after full UC implementation – again, giving high priority to those most likely to be disadvantaged.

  1. Simplified cash basis for uninc property business.

(Not read)

  1. Bringing business tax in to the digital age.

With self-employment at an historic high  plus the post-BREXIT economic uncertainty and recession risk, considerable care is needed to avoid many small businesses (regardless of legal status) failing due to the pressures of MTD – and so increasing the numbers of unemployed/benefit claimants.    If MTD becomes just too difficult and/or too expensive, people may just give up – creating unacceptable political, social and economic risk.

Consequently, every aspect of MTD introduction should be tested at the level of the most vulnerable businesses – rather than the scenarios currently used.

Many of these businesses will barely use IT for business, may need to purchase new hard and software and, most importantly, learn how to use it.  This represents burdens in time, cost and business owners’ confidence and commitment.  The proposals in this area are not yet sufficiently developed with cross-Departmental input.  For example, there is no mention of how all New Enterprise Allowance providers (or similar other projects) will be required to deliver MTD training, how Access To Work funded support workers will be upskilled or on how other agencies (local Councils, Skills Funding Agency and more) will support the implementation.

HMRC can obviously identify those self-employed and other businesses that currently have no or very limited IT interactions   with the Department but it is not clear how this consultation or any concept testing has been undertaken directly with such customers.  This would also provide a more meaningful assessment as to whether the proposed £10K threshold for mandatory MTD is meaningful and realistic, how it relates to WTC, Housing Benefit, UC, personal tax allowances and how it will be automatically adjusted in line with the wider economy.  Direct concept testing with the most vulnerable would also amplify the “other reasons” justifying MTD exemption.

Recognising the Government’s goal of halving the disability employment gap and that working disabled people are more likely to be self-employed than their non-disabled peers, there is little evidence that their needs have been sufficiently addressed.  It is not evident that Government has been successful in achieving compliance with the Equality Act regarding reasonable adjustments, accessibility or information available in alternate formats across either its own digital products or the external software developers with which it works.  This tends to undermine any suggestions that systems will be fully inclusive for those with additional needs –whether due to low literacy, numeracy or IT skills or reliance on adaptive technology.

Overall, it is disappointing that HMRC does not report what evidence it holds showing that MTD will have no significant or disproportionate impact on customers with Equality Act characteristics.  Proliferation of SMART phone ownership is surely not a convincing basis upon which to rely upon in gauging those owners’ ability to use such for MTD?

  1. Tax administration.

Setting aside the issues of deliberate cheating or aggressive tax avoidance, it might be expected that an aim of MTD to reduce the levels of non-compliance, errors, late submissions/payments etc. would be supported by evidence of current performance and goals set for improvement.  These would seem to be basic measures for assessing the value of introducing MTD and its long-term effectiveness.

Additionally, compliance data relevant to different groups of individuals (for example, by protected characteristics) and/or types/sizes of businesses plus current means of filing would demonstrate HMRC Equality Act duties while highlighting risk areas for non-compliance by volume, value and such characteristics.

This would then assist MTD design to mitigate risk and improve performance.

  1. Voluntary payment.

The business finance rationale of voluntary tax payments far in advance of their due date requires strengthening if reductions in working capital, loss of interest and demonstrable assets is to be justified.  For those with most need to budget for their tax, there is a risk that such payments could become analogous to pre-payment utility meters with the associated adverse publicity

Penny Melville-Brown OBE

Disability Dynamics ltd www.disabilitydynamics.co.uk

Helping disabled people to work since 2000