HMRC deadline to make tax digital is unrealistic

Brewer Morris recently conducted research into how Tax Professionals felt about HMRC’s plan to digitalise tax: Is it a good thing? Is it really needed? Have HMRC set realistic deadlines? How will Businesses and Tax Professionals be affected by this?

Following the recent HMRC consultations on making tax digital, I will briefly review HMRC’s plans to digitalise tax and present some of the findings from our survey. Our research has indicated that 68% of Tax Professionals support the idea of tax digitisation; good news for the profession as a large majority appear to have the same goal in mind – the need to get tax reporting out of the dark ages and into the 21st century. However, here is where the industry's opinion differs from HMRC; 80% of the Tax Professionals we surveyed felt that the government’s deadline of 2020 is unrealistic.

HMRC’s official timeframe suggest that between July - December 2018 most businesses (including landlords and the self-employed) can start updating HMRC on a quarterly basis for Income Tax and National Insurance obligations through their accounting software. By 2019, they can start updating HMRC quarterly for VAT obligations, and finally, from 2020, they can start updating HMRC quarterly for Corporation Tax obligations. In theory, this all sounds fairly straightforward. But is it really?...

From speaking with Tax Professionals on a daily basis, (ranging from the Big 4 to smaller boutiques practices), this is certainly a hot topic. While some firms have chosen to focus on more pressing matters and leave tax digitisation for another day, others were very vocal about this issue. When asked about the major barriers to implementation in time for 2020, the most common themes from the responses we received were: a lack of resources, the cost of IT infrastructure, training staff, insufficient time to apply and test the systems, and perhaps more importantly, the implications of Brexit which is scheduled to happen in 2019.

So, have HMRC thoroughly thought this through? Our survey found that the majority of Tax Professionals feel that 2025/26 would be a much more realistic timeframe, allowing businesses sufficient time to implement the correct infrastructure, test it, train staff, and allow the new process to be part of the culture.

It’s not all negative news though. When asked, 92% of those surveyed felt that their job or career will not be put at risk because of the forthcoming proposed changes. When asked how their jobs will be affected (if at all), there were again some common themes throughout. Overall, the sentiment was that the nature of work that a Tax Professional undertakes will change, namely that there will be more of an emphasis on advisory services. Also, many highlighted that there will be a lesser need for accounts preparation and more need for (value-add) ‘reviewers’.

As a former Tax Advisor at one of the Big 4, I can see how this topic concerns some more than others. However, it should not be ignored. A cultural shift in how businesses and individuals are to approach their tax affairs is going to take more than a few years to instil, it is also going to take Advisors time to be able to understand and in turn educate their clients. Throughout my time as a Private Client advisor, I saw the introduction of online self-Assessment filing and Real Time Information (RTI) – both of which came with frustrations whilst it took time to adapt.

The past few years have seen the landscape of tax change within the UK, with tax transparency and exchange of information being high on agendas. Both of which have lent themselves to an increased number of tax investigations, which has in turn lead to more penalties and the encouragement of the use of disclosure facilities, thus providing revenue for HMRC. Some may find this a cynical mentality but it’s not an uncommon one in the profession. Therefore, whilst increased simplicity and transparency is a good thing, have HMRC considered the impact on those affected, opposed to the benefits for them?

It will be interesting to see what comes of the six consultations that closed yesterday, and whether HMRC will be receptive to Tax Professionals opinions. Overall, I believe the initiative is a step in the right direction, but I fear this is an example of simplification providing additional complications and potentially more issues. Time can only tell.