James ConeyApr 3 2019

Challenges of making Britain’s tax digital

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Challenges of making Britain’s tax digital
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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.

Making Tax Digital feels like something that could have been left for another day when there are not so many other concerns.

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?

And then there is Brexit, again. In all, Making Tax Digital feels like something that could have been left for another day when there are not so many other concerns.

Millennial advice

So the discussion rages on about how the financial advice sector can offer more for millennials.

Is this an age old discussion, or what? 20 years ago though, there was not this pervading feeling there is today of having been screwed by the older generation.

But the debate persists nonetheless.

There is no answer though. Those who speak for this generation want the advice community to spend more time recognising their needs, using language that is better suited to their lifestyles, and so on.

But really what makes everything more accessible is costs. Advisers are not charities, and expertise and advice costs money. Compliance costs and changes in commission have meant it is unaffordable to offer something to 20-somethings who are poorer.

And that is nothing special to do with being a millennial, it is just part of being young.

Nudge behaviour

I am still not convinced by the digital banks.

They do not operate like traditional savings and loans businesses, and I am not entirely certain of their intentions when it comes to using our personal data.

But what they are good at is innovating. Tandem Bank has become the latest to offer an app that rounds up your spending to the nearest pound so you can save the difference.

Others use artificial intelligence to predict your spending so customers know how much money they really have left.

Without a doubt, this kind of nudge behaviour is where the future lies if we are to rekindle our savings culture.

James Coney is money editor of the Sunday Times