The government’s taxing technology

The wheels are falling off HMRC’s Making Tax Digital programme. But delays in the implementation of Her Majesty’s own digital plans shouldn’t stop SMEs from investing in technology.

When then-Treasury Secretary David Gauke launched the Making Tax Digital (MTD) programme, he set some ambitious targets for business users of HMRC’s services. “Businesses should not have to wait until the end of the tax year or even longer before knowing how much tax they should pay,” said the government’s pamphlet bearing his name.

“HMRC will collect and process information affecting tax in as close to real-time as possible, to stop tax due or repayments owed from building-up. From April 2018, businesses will update HMRC at least quarterly where it is their main source of income.”

For most large businesses, this isn’t news. Tax has been digital for them for some time, and most of them have sophisticated systems to generate and file the data HMRC needs. (Whether HMRC is processing that data correctly is another question.)

But lower down the food chain, things get murkier. Back in March, the ICAEW surveyed businesses and found that, amazingly, 75% do not currently maintain their accounts electronically using accounting software. Many of these will be very small businesses – but for HMRC’s automated dreams, this presented a big problem.

So much so, that by August the government was quietly rolling back on the 2018 deadline even as it opened a consultation on the subject ( the one you can still contribute to, incidentally, until Monday 7th November) – and in September admitted it would be 2019 for some SMEs.

And now? At the end of October 2016, the Commons Treasury Select Committee heard from a slew of experts that MTD was a bad idea. According to one survey of businesses, there needs to be a major delay. Among those in SMEs and owner-managed firms, a majority think a revised deadline of 2025/26 is more realistic.

The killer blow is probably that ICAEW statistic. It’s not just HMRC, of course, that suffers from the low-tech of its customer base. Banks, for example, would love us all to transact exclusively from our smartphones, enabling them to close branches and stop processing cheques. But there is a minority of people for whom the costly legacy will always be the norm. So we have to keep those services going.

The frustrating thing for HMRC is that there are a million reasons to invest in accounting technology quite outside the ability to plug directly into the tax system. Greater visibility into the business, automation of paperwork, improved relationships with suppliers and customers, and not making a mess of things. 

Because, even in 2016, an large number of businesses still rely on either paper records or, often, spreadsheets to run their numbers. Spreadsheet errors are the stuff of legend – their failings a feature from their very first use.

It would be easy to assume this is a niche problem, which only those smaller businesses are blighted by spreadsheet woes. Easy – and wrong. As AccountingWeb reported just this summer: “Marks & Spencer chief financial officer Helen Weir was shocked after discovering that a spreadsheet summing error forced the retailer to issue a correction to its quarterly trading statement.” Even FTSE 100 businesses are in a position where they rely on spreadsheets – and are vulnerable to their mistakes.

That makes a case for investing in technology to run the numbers even more compelling. And if smaller businesses watching the HMRC’s digital yoke recede into the future think that’s a cue to carry on business as usual – they should think again. Her Majesty might not want to electronically investigate your numbers automatically to check for accuracy. But you should.