One word we will be hearing a lot in 2016 – and indeed over the next few years – is digital, writes Paul Aplin (A C Mole & Sons and chairman of the ICAEW Tax Faculty Technical Committee).
I have long been an advocate of digital tax and business administration and while I do not think that the past is always a guide to the future, two lessons I draw from the evolution of tax e-filing over the last twenty years are that gaining a genuine understanding of business processes at the earliest possible stage and thorough testing are critical components of success.
HMRC’s ambitious – some would say revolutionary - Making Tax Digital project distinguishes two classes of taxpayer: personal and business.
The vision for personal digital tax accounts seems entirely logical: if HMRC or another government department holds information, the individual’s personal digital tax account should be pre-populated with it. Initially HMRC will pre-populate PAYE information, but over time will include state pension and bank/building society interest. Presumably this will then be extended to other taxable state benefits and – with appropriate powers to require returns of information – dividend and similar income. There will be significant challenges in terms of maintaining data accuracy, making provision for the digitally excluded, ensuring agent access in tandem with taxpayer access ab initio and in defining the degree of care a taxpayer will need to take in checking the accuracy of a pre-populated return; there will also I suspect still be many cases requiring further data input from taxpayers and agents for some years to come. This development is one that I think most individual taxpayers will rightly welcome.
Turning to businesses, many embraced digital accounting decades ago and the majority now maintain their records electronically. Many small and micro businesses however still prefer manual record keeping, do not bank on line or use email or the internet. Under the plans announced in December digital record keeping will however, unless there is a change of heart, be mandatory for all such businesses by 2018. This for some will be a massive change.
The timetable HMRC has set itself is challenging. It might have been less challenging to begin with larger businesses, where digital record keeping is routine and then work gradually down, while increasing numbers of micro and smaller businesses transitioned voluntarily (and based on a proven business case for doing so rather than compulsion).
Putting the issue of compulsory digital record keeping – which is opposed by a number of professional and representative bodies, including ICAEW – to one side for the moment, Making Tax Digital needs to deliver for all who use it: businesses, HMRC and agents. That will only happen if all stakeholders work closely together to establish, understand and then try to overcome the issues and barriers; it will also be the best way to identify opportunities. Thorough research will be needed to better understand the genuine and serious concerns small and micro businesses have and I welcome the fact that HMRC has asked Rebecca Bennyworth to lead a group to do precisely this. Further research will be needed on digital exclusion, on the 'assisted digital' population and on business burdens, where HMRC’s Administrative Burdens Advisory Board and the OTS could logically play key roles. New technology – from apps to major infrastructure – will need to be built, tested and rolled out.
These are early days and consultation on the detail will begin this month. Already it is clear that there will be many questions of principle and detail to address and resolve. Working together is essential if we are going to end up with a digital environment that goes with the grain of business processes and minimises compliance burdens.
2016 will be a year of living digitally but also I hope a year of working together, with a shared willingness to see the issues, challenges and opportunities through each other’s eyes. That should be possible notwithstanding the fundamental differences of view on mandating digital record keeping for all businesses.
One word we will be hearing a lot in 2016 – and indeed over the next few years – is digital, writes Paul Aplin (A C Mole & Sons and chairman of the ICAEW Tax Faculty Technical Committee).
I have long been an advocate of digital tax and business administration and while I do not think that the past is always a guide to the future, two lessons I draw from the evolution of tax e-filing over the last twenty years are that gaining a genuine understanding of business processes at the earliest possible stage and thorough testing are critical components of success.
HMRC’s ambitious – some would say revolutionary - Making Tax Digital project distinguishes two classes of taxpayer: personal and business.
The vision for personal digital tax accounts seems entirely logical: if HMRC or another government department holds information, the individual’s personal digital tax account should be pre-populated with it. Initially HMRC will pre-populate PAYE information, but over time will include state pension and bank/building society interest. Presumably this will then be extended to other taxable state benefits and – with appropriate powers to require returns of information – dividend and similar income. There will be significant challenges in terms of maintaining data accuracy, making provision for the digitally excluded, ensuring agent access in tandem with taxpayer access ab initio and in defining the degree of care a taxpayer will need to take in checking the accuracy of a pre-populated return; there will also I suspect still be many cases requiring further data input from taxpayers and agents for some years to come. This development is one that I think most individual taxpayers will rightly welcome.
Turning to businesses, many embraced digital accounting decades ago and the majority now maintain their records electronically. Many small and micro businesses however still prefer manual record keeping, do not bank on line or use email or the internet. Under the plans announced in December digital record keeping will however, unless there is a change of heart, be mandatory for all such businesses by 2018. This for some will be a massive change.
The timetable HMRC has set itself is challenging. It might have been less challenging to begin with larger businesses, where digital record keeping is routine and then work gradually down, while increasing numbers of micro and smaller businesses transitioned voluntarily (and based on a proven business case for doing so rather than compulsion).
Putting the issue of compulsory digital record keeping – which is opposed by a number of professional and representative bodies, including ICAEW – to one side for the moment, Making Tax Digital needs to deliver for all who use it: businesses, HMRC and agents. That will only happen if all stakeholders work closely together to establish, understand and then try to overcome the issues and barriers; it will also be the best way to identify opportunities. Thorough research will be needed to better understand the genuine and serious concerns small and micro businesses have and I welcome the fact that HMRC has asked Rebecca Bennyworth to lead a group to do precisely this. Further research will be needed on digital exclusion, on the 'assisted digital' population and on business burdens, where HMRC’s Administrative Burdens Advisory Board and the OTS could logically play key roles. New technology – from apps to major infrastructure – will need to be built, tested and rolled out.
These are early days and consultation on the detail will begin this month. Already it is clear that there will be many questions of principle and detail to address and resolve. Working together is essential if we are going to end up with a digital environment that goes with the grain of business processes and minimises compliance burdens.
2016 will be a year of living digitally but also I hope a year of working together, with a shared willingness to see the issues, challenges and opportunities through each other’s eyes. That should be possible notwithstanding the fundamental differences of view on mandating digital record keeping for all businesses.
