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By Ben Stupples
Sept. 19 — The U.K. tax authority should consider a pilot program to test plans to digitize the country's tax reporting system before instituting such a sweeping change, the chairman of the U.K.’s Treasury select committee said.
“There remains considerable cause for concern with the proposals,” Andrew Tyrie wrote Sept. 15 in a a letter to Chancellor Philip Hammond. “Better to get it right than to stick to a rigid timetable.”
The British government Aug. 15 set out its plans in a seven-part consultation to revolutionize its tax system, mandating that taxpayers and businesses maintain their records digitally from April 2018 (158 ITM, 8/16/16).
Tyrie's letter said introducing a fully digitized tax system in the 2017 Finance Bill won't leave adequate time for Her Majesty’s Revenue and Customs to consider feedback on the proposal. The government's consultation process ends Nov. 7, just weeks before Hammond's Autumn Statement to the House of Commons due Nov. 23.
A further consultation period on the process would be open until Jan. 30 for measures in the 2017 Finance Bill.
In his letter to the Chancellor, Tyrie said the digital system may make dealing with HMRC less intimidating and suggested allowing taxpayers to experiment with various tax scenarios to help provide certainty.
Tyrie suggested piloting the new system before the introduction of mandatory digital tax reporting.
“From this, the lessons from customers’ experiences can be learnt,” he said.
Under the proposal to fully digitalize the U.K. tax system, taxpayers and businesses would have access to digital accounts that contain all the information that goes into their individual tax calculations and be required to maintain their records digitally from April 2018.
The U.K.’s digital tax service would remove bureaucratic form-filling and unnecessary time delays, while the efforts to increase transparency will help reduce tax underpayments and overpayments made by taxpayers at the end of each financial year, HMRC said.
Businesses, self-employed and property landlords with less than 10,000 pounds of income ($12,900) won’t have to update their tax accounts quarterly. Larger businesses may have until 2019 before they adopt the new system, said Financial Secretary Jane Ellison Sept. 5.
As part of the Treasury Committee’s inquiry into the U.K.’s tax system, Deloitte’s head of tax policy and president of the Chartered Institute of Taxation, Bill Dodwell, said he doubted whether the digital system will meet HMRC’s objective of simplifying tax.
Dodwell supported HMRC’s decision to start implementing digital reporting with larger businesses, which have more capable accounting systems, but the threshold for quarterly reporting in the new system should be “well above” the proposed 10,000 pounds, he added.
“Our view is that it is too rapid and making it compulsory is going to make the roll-out very challenging,” Dodwell said about HMRC’s proposed time table to adopt the MTD. “It is going to be even more challenging than some of the previous digitization projects.”
Yvette Nunn, co-chair of the Association of Taxation Technicians’ (ATT) Technical Steering Group, shared the view that HMRC’s digital system won't simplify tax compliance and stressed that small companies will be affected most by the system from the costs to implement it.
“I support doing tax digitally, but most people will not know what they’re doing and just upload gobbledegook,” Nunn said on taxpayers filing through the new system. “They’ve all come out at once, probably in the hope that we won’t able to cope with them and they go under the radar,” she added on the release of HMRC’s consultations.
The Association of Chartered Certified Accountants’ head of taxation, Chas Roy-Chowdhury, has also criticized the mandatory approach for the new system.
“I don’t think it should be mandatory—they are proposing a carve out for the smaller end but everyone else is netted,” Roy-Chowdhury told Bloomberg BNA Aug. 15.
The new digital system may be all “singing and dancing purely for the benefit of HMRC,” he added.
HMRC said the planned changes will help to reduce the tax gap and contribute 945 million pounds to the Exchequer by 2020-21.
HMRC also announced Sept. 12 that corporation tax documents posted to U.K. businesses will be replaced by electronic alternatives from Sept. 19.
To contact the reporter on this story: Ben Stupples in London at email@example.com
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Andrew Tyrie's letter to the Chancellor of the Exchequer is at http://www.parliament.uk/documents/commons-committees/treasury/Correspondence/160915-Chair-to-Chancellor-Making-Tax-Digital.pdf.
HMRC's consultation on Making Tax Digital is at https://www.gov.uk/government/collections/making-tax-digital-consultations.
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