James Coney 

Challenges of making Britain’s tax digital

James Coney

James Coney

The start of a new tax year always brings headaches for anyone in financial services.

New allowances, new products, the aftermath of the end-of-year rush to invest.

But this year there is a significant new problem – and once more we have former chancellor George Osborne to thank.

The government’s Making Tax Digital project begins for the vast majority of companies with a turnover of above £85,000 from April. Effectively it means filing VAT returns by computer.

Mr Osborne unveiled all this as chancellor four years ago with plans to have all individual and business tax returns submitted digitally by 2020.

That was scrapped in an embarrassing U-turn and an admission that Britain was just not ready, largely because so many small companies just do not have the capability.

Other deadlines remain, including this requirement for companies to submit their VAT returns online.

Companies I have spoken to say that this comes on top of an unprecedented cocktail of cost pressures, not least the national living wage and increased employer contributions into auto-enrolled pensions.

There is also an apprenticeship levy for some, and rises in business rates.

And that is before you have even started the eye-watering red tape that many advisers face.

Oh, and if you had not noticed, we are also leaving the EU.

Making Tax Digital has predictably been mired in the types of delays and confusion that HM Revenue & Customs seems to specialise in. We all remember the utter fiasco of 2010, when HMRC implemented new computer systems, causing absolute chaos for millions of people when they received their tax codes.

What many companies do not like is that they have successfully filed their VAT returns without a problem for years and so do not feel particularly compelled to change a business process.

Being forced to do it online feels a bit like another unnecessary obstacle put in their way by the government.

There have been all sorts of mis-steps along the way. A common misconception is that everyone will need new computer software package to file to HMRC. It insists this is not the case.

Without a doubt, Britain could do with pushing towards a more digital future – but just as with much of what HMRC does, the communication for Making Tax Digital has been poor and it comes at a time when the taxman’s resources are already over-stretched.

And what if it all goes wrong? I hear there are already concerns about HMRC implementation of a new computer system to sort out pensions tax relief for Scottish taxpayers who now pay separate income tax rates.

Who will be there to pick up the pieces for small companies that feel caught out?