Hillier Hopkins LLP is holding a series of seminars on Making Tax Digital. Our own Ruth Corkin and HMRC’s Heather Elliot will present short explanations and provide technical background, followed by questions and refreshments. Demand has been high and although most places are now taken, if you would like to attend, please do put your name down on our waiting list.
Making Tax Digital (“MTD”) is the latest euphemism adopted by government for shifting the burden of tax collection onto the taxpayer. We have seen the terms “Customers” replace “Taxpayers”, “Officers” and “Case Workers” replace “Inspectors”, and of course “Self-Assessment” replacing “Assessment“. We have seen friendly “Tax doesn’t have to be taxing” adverts, and “Advice” emails adding to the spin. However, make no mistake, whatever your political allegiances, MTD is among the most intrusive government projects yet devised in modern Britain.
The concept of Making Tax Digital, which has been imposed by government as much on HMRC’s staff as on the general taxpayer, is to link your data to government. Next month, as we see the introduction the General Data Protection Regulations (“GDPR”), we can also witness government forcing us to connect our data to them and legislating to allow government agencies to help themselves to data which belongs to us.
The irony seems to have been missed by many, who have focused on government’s dreadful record of data security breaches. Actually, that is small beer. Government departments may at times be as inept as everyone else, but they do have endless supplies of (your) money with which to put things right. The real issue is that, while legislating to ensure privacy of personal data, they have also been legislating to allow themselves access to it. They really have.
In the beginning, MTD will apply only to VAT registered businesses with turnover over £85,000 pa, in other words, almost all but micro-micro businesses. (This temporary limited scope was in fact a victory of consultation.) At your own expense, you will need a new internet-based link directly to your accounting software, or via an approved program called an “API” to link to spreadsheets and other sources of data. At first, software will transfer much the same information as you have to give HMRC already, but they have stated that this will increase and increase. This will help the UK’s GDP, won’t it?
Government consulted with HMRC, the professions and public, and many doubted it was a good idea. So government pressed ahead anyway, legislated and good or bad, we will all have to comply. So now we must all focus on how we are going to comply. Indeed, that is what our seminars will focus on, because that is what you need to know. If you get that wrong, there will be penalties.
Tax is an imperative, and unlike other government intrusions, which are generally optional, MTD is ultimately imposed on every citizen. However valid the need for government spending and however friendly and socially appealing the spin becomes, in the end, tax involves government deciding how much of what starts life as yours will become theirs. Tax is one of the two certainties in our lives, and now MTD is a third. MTD is billed as the latest way to help businesses and customers to avoid mistakes and get their tax right. Well they would say that wouldn’t they?
But what does MTD truly mean?
For the first time, government will have direct access to our records without having to show good cause. The process will take several years, but this is where we are moving.
The implications are profound, not only because of the invasion of our privacy, but because it interferes with the relationship between taxpayer, adviser and government. A conspiracy theorist might suggest this is deliberate. A direct link to HMRC will call into question any adjustments you make because your accountant has advised you that the way you originally treated a transaction was incorrect. You will be dependent upon the software manufacturers to have written programs that get things right. When it reaches full flow, MTD will bypass the adviser, and government will decide how it wants to treat any transaction. If you disagree, you will have to argue the point. By then you may well have dispensed with your adviser (note the self interest here), and have to rely on a HMRC helpline.
Remembering that tax compliance is a by-product of accounting for transactions and is not its primary purpose, I expect that many businesses will seek to interrupt the flow of data from their records to HMRC by deliberately avoiding the simplified processing software designed to make business life easier and which talks directly to HMRC. This counter-intuitive approach will, for a while, allow businesses to take back control, but at a cost to the businesses as they operate more clumsy software. Indeed, we have seen that some of the high-end suppliers have already stated that they will not develop processes to link with HMRC.
Gradually, MTD will extract ever more data about your business and eventually will suck it into HMRC’s analytics programs probably in real time. Everything you know, HMRC will know. The scope will widen to cover corporation tax, income tax and every other form of transaction until we have no privacy at all. It will only be limited by processing power. Before you know it, your bank accounts, credit card accounts, and in the end, as banks link to software and software links to HMRC, every transaction made by you using any account whatsoever will be available to government agencies before, or at the same time as you know it. This is the start of very Orwellian government.
Does it matter? After all, “nothing to hide, nothing to fear”. “Maybe it will help avoid and counteract fraud?” Well, maybe it will, but at what cost? People will be looking over their shoulder, however innocent they may be. You see, people think, “there’s no smoke without fire, is there?” But so often there is. People run lottery syndicates and holiday clubs, and use the power of digital technology to transfer money around. It is all perfectly legal and innocent, but do you feel you should have to justify it to HMRC?
Is it right that an Inspector of Taxes should know what you bought your partner for Christmas and from where? Should they be able to examine such things and challenge your lifestyle in a free democracy? This high level of potential scrutiny will also stifle creativity. Creativity requires doing something that is exceptional, and the artificial intelligence that runs HMRC analytics programs will question the exceptional.
We all like digital, don’t we? It makes for great photos, it allows easy access to making exciting family videos, recording and playing high quality music, transferring data. It also makes it easy to download music we haven’t paid for, take data, and steal money and identities. Everything happens in an instant, before humans can intervene. We all laughed when Little Britain coined the phrase “computer says no” but we all know it to be all too true.
In the press only this week we see that a government department has admitted a form of institutional bias in their blinkered following of government policy. Accountants standing between their clients’ raw data and HMRC have always been the check and balance. Without that defence, there is a real risk that HMRC’s requirement to collect tax will over-ride its current fair and balanced approach. And that ought to make us a little worried.