Opinion: Tax Terrors Imposed by Deaf HMRC
HMRC not listening to House of Lords’ worries about digital tax compulsion
“Please note, we are currently experiencing high volumes of enquiries and apologise if replies are outside of 15 working days.” – HMRC, VAT ‘help’, today February 9th 2019.
HMRC, Her Majesty’s Revenue & Customs, can use pressure of work as an excuse for not responding to enquiries in a timely manner.
But will HMRC allow taxpayers to use the same excuse?
From April, the month after next, all 1.2 million or so UK businesses with annual turnover of £85,000 and more must use commercial software to file VAT returns to HMRC, under the new ‘Making Tax Digital’ (MTD) rules . (Unless you have a really big business and have negotiated an exemption because of ‘complexity’.)
We have kept financial records for 30 years, at first on paper and then Excel spreadsheets and paper. Now I have failed at Quick Books (not as simple as TV ads make it seem, either that, or I am just too dumb). Quick Books is probably the most heavily advertised of the commercial accounts packages, but I looked for alternatives and found Xero, with which I am doing a little better.
The change is not going to alter the amount of VAT we pay, but it is imposing new costs in both money and time.
By November 2018, between 30% and 40% of businesses affected by the new requirements were not even aware of them, let alone ready to file directly from software. There will be no copying and pasting, your digital accounts have to be kept up to date in real time.
The House of Lords’ Economic Affairs Committee has issued a blistering report on the shortcomings of ‘Making Tax Digital’.
Making Tax Digital for VAT: Treating Small Businesses Fairly, published on November 22nd 2018, lists 54 points of concern, which add up to an accusation that HMRC is failing to treat small businesses fairly. For example, points 24 to 28 (referring to paragraphs in the main report):
“ 24. HMRC is alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019. They have underestimated the time for research, planning, training and system changes that some businesses will need. (Paragraph 89)
“25. HMRC told us on 16 October that it was “significantly increasing its communications activity” to ensure businesses were ready for April 2019. With less than five months remaining before introduction, it is too late to begin an effective communications campaign. (Paragraph 90)
“26. We recommend that HMRC increases the communication and support available to agents, and listens to agents’ concerns. Within that communication strategy, HMRC needs to address how it supports unrepresented taxpayers. (Paragraph 91)
“27. Some businesses with complex affairs have been granted a six-month deferral after they complained about the April 2019 deadline. Smaller businesses also need to be heard by HMRC specialists and the case for further categories of deferral should be considered. In addition, specific support in dealing with implementation problems will be needed for unrepresented taxpayers. (Paragraph 92)
“28. The evidence presented to us suggests that HMRC, taxpayers and the software market are unprepared for the implementation of Making Tax Digital for VAT in April 2019. (Paragraph 94)”
More than two months on from the House of Lords report, HMRC has not changed course, not even to the extent of handling the evident backlog of enquiries at weekends, when at least some small business owners may have a few hours to labour on the mandatory switch to digital.
Businesses without access to reliable broadband may apply for an exemption, but it is not clear to me how readily this would be granted. HMRC has not sent us any information on this. The most recent communication was in December 2018, about preparing for a no-deal Brexit. “Register for a UK Economic Operator Registration and Identification (EORI) number”, the letter ordered.
Surely managing the repercussions of changing the UK’s relationship with the EU are, on their own, more than enough for HMRC to cope with, let alone requiring businesses to switch to real-time digital filing?
Currently HMRC has a simple online form for submitting VAT returns. Even I can do it.
The new draconian requirements are enough to drive me, and lots of other small businesses run by people who grew up before the computer age, finally into retirement. Either that, or we do less work, take turnover to below £85,000, and deregister from VAT.
Far from receiving more VAT, the government could find instead that its VAT income dips.