Spotted in the HMRC 2016/17 HMRC Accounts | Accounting Practice Online

Spotted in the HMRC 2016/17 HMRC Accounts

I’ve been manfully ploughing my way through the Report of the Comptroller (is this an old fashioned word or what) and Auditor General into the 2016/17 Accounts of HMRC and so far these two paragraphs jumped out of the page at me.

“Additional tax revenue of £920 million

2.20. Making Tax Digital for Business is expected to deliver HMRC’s £920 million target for additional tax revenue. The target is based on assumptions that requiring businesses to keep digital records using commercial software, and providing HMRC with quarterly digital data will reduce error and that this will increase tax revenues. HMRC’s evidence to support its assumptions about why small businesses currently make mistakes in their tax, and the extent to which digital record keeping will prevent these errors and increase tax revenues, are based on HMRC’s random enquiry programme. However, the behavioural response of taxpayers is difficult to gauge this way. The Office for Budget Responsibility considered HMRC’s estimate to be ‘reasonable and central’ but gave it a ‘high’ uncertainty rating because of uncertainties in the extent to which the software will prevent errors by taxpayers and the timing of delivery.

Reduced business costs of £400 million

2.21. HMRC expects a reduction in business customers’ costs on the assumption that businesses will need to spend less time meeting their tax obligations as a result of Making Tax Digital for Business. HMRC considers that more routine work will be done automatically and end-of-year processes will be simpler than they are currently for a business maintaining its books and records on paper. HMRC’s internal forecasts show savings to customers of £100 million from April 2018 but these do not take account of transitional costs to business.”



Here we have stated for all to see that HMRC believe that £920m additional revenue will be delivered by the reduction in errors because of the use of commercial software and reporting figures every three months. Its assumptions based on random enquiries apparently, we don’t know how many random enquiries nor do we know how many of the taxpayers were represented as opposed to un-represented. Important questions but none the less no answers given. No information whatsoever about how many errors as evidenced by these random enquiries resulted in payments to taxpayers for errors that were in HMRC’s favour? When you think about it there probably were hardly any because random enquiries are not geared to probe if there are additional expenses the taxpayer could claim that they had omitted or that add backs for private use were overstated because that’s the nature of a tax enquiry whether random or not. They are about Revenue Gathering and not about establishing the genuine accuracy of the records or the correctness of the tax as finally detailed. I hope that when MTD does eventually come in for small businesses that it results in a significantly lower yield to the Revenue because mistakes cut both ways and for HMRC to assume that they weigh £980m in their favour is to my way of thinking a tad excessive to say the least.

As for the £400m reduced business costs don’t get me started and remember by their own admission this excludes any transitional costs. Again this is comparing tech versus pens and paper which seems a genuine conclusion to draw but how many taxpayers were using paper records? More to the point of those paper recorders how many transactions were they recording per year or per month or per week. If you are a taxi driver say working 5 days a week filling up twice a day that’s 10 entries for fuel a week which will undoubtedly be the single most recurring expense item. So how much will the taxpayer save by using software to record these entries compared with the time taken to note them down? Is it worth £400m? I don’t think so but it seems HMRC do.

 

Accounting Practice Online is part of the ICPA, which is an organisation designed to provide support and guidance for accountants in practice. With 35+ practice specific benefits there has never been a better time to join. Take a look at the routes to membership today.

Leave a Reply

Your email address will not be published. Required fields are marked *