HMRC: software vendors will not be ready for Making Tax Digital

Making Tax Digital programme director Theresa Middleton has warned members of the House of Lords Economic Affairs Committee that some software vendors will not be ready to take part in the Making Tax Digital pilot scheme set to commence in April 2017. Calum Fuller reports

The proposals will see small businesses and residential landlords keeping digital records and providing quarterly updates to HMRC, with the tax authority rolling the regime out to small businesses and the self-employed first, before moving onto larger entities.

Earlier in February, the committee heard from the chief executive of software vendor Iris the level of communication between software developers and HMRC is inadequate and there is not enough detailed specifications about the IT requirements for the rollout. They also heard in that same hearing that the timetable for the project is inadequate.

In the case of spreadsheets, suppliers were not notified of HMRC’s decision to retain spreadsheet reporting until 31 January 2017. Although the decision was welcomed by the tax profession, it raises compatibility issues as HMRC’s internal IT system will not be able to directly import data from spreadsheets; it will have to go through a third party tool before it can be used by the tax authority.

When challenged on the lack of communication and detail by Baroness Kingsmill in the latest hearing, Middleton conceded that she expected ‘some established players in the market’ would not be prepared to take part in the pilot scheme from its launch date in April 2017.

‘While some established players may not be ready with their products for April, we also expect some others will be ready,’ she told the committee. ‘We are pretty confident that there will be not a full range and not every supplier ready for April, and the worst-case scenario is that we’ve heard some will be ready in October.’

HMRC plans to start testing the Making Tax Digital reporting system from April with an initial cohort of 100 or so testers in place for the pilot, with ambitious plans to expand to 400,000 taxpayers by the time the quarterly update system’s trial commences in October.

‘Yes, there are some things they want us to iron out, there are some documents we are still to provide, but [being ready by] October is the worst scenario we’ve had described to us.’

Baroness Kingsmill expressed her dissatisfaction that HMRC was using private software suppliers to facilitate the project.

‘How do they make money out of the customer? Customers who are obliged by HMRC to do this. Obliged to – probably – buy software,’ she said. ‘Ultimately, this is giving these software operators an opportunity to make money out of captive taxpayers.’ 

Exemption threshold

On the question of the where the exemption threshold will be set, tax assurance commissioner Jim Harra explained a lower threshold than the £83,000 VAT registration threshold would help eliminate tax leakage.

‘All our existing evidence on the tax gap shows that the businesses with the greatest need of help are the smallest businesses,’ Harra said. ‘Those with an income below £83,000 represent 80% of errors and failure to take reasonable care tax gap in self-assessment. The government has an exemption at £10,000 and we did get quite strong representations in the consultation that needed to be higher, but the £10,000 figure actually takes about 2.6 million businesses out of Making Tax Digital.’

He added ‘a deferral’ is still under consideration and a decision would be made ‘before the legislation is laid out.’

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