Lynne Bell looks at the advantages and disadvantages of Making Tax Digital.
Advances in technology have affected our lives in many ways. We can now shop online, manage our money from our mobile devices, and connect to a plethora of services 24/7. Therefore, it should come as no surprise that HMRC is heading the same way by Making Tax Digital (MTD).
The UK government is following the example of many other countries that have already implemented similar technology. Hopefully, they’ve gained insight from the experiences of places like Australia and America.
Like everything, MTD has its advantages and disadvantages for both HMRC and taxpayers. Some of these are outlined below.
Advantages and disadvantages for HMRC
As far as HMRC is concerned, there are far more advantages to MTD than disadvantages. The system will be more streamlined and more effective. It will cost them less to run and monitor than traditional systems.
The biggest problem HMRC will face is people’s misconceptions about how it will work and dealing with the many taxpayers who are not going to be happy that their affairs have become much more transparent.
Advantages and disadvantages for the taxpayer
When HMRC first announced MTD, they said they would provide free software for completion. HMRC subsequently changed their mind about this, and now taxpayers will either have to buy software or pay someone to submit for them. The days of filing your own self-assessment, VAT or PAYE through the HMRC site will disappear, and this is probably the biggest disadvantage of all for taxpayers. There are many small businesses that currently file all returns themselves for free, and now there will be a cost involved.
However, that cost should be small compared to the advantages the new system will bring. Instead of relying on many files of paperwork, when the information is input into software a taxpayer will always be able to see the up-to-date position of their tax affairs. It will mean they no longer have to wait until the year end to see if they are profitable or not, and errors will be spotted much sooner.
MTD compliant software will ensure taxpayers can keep track of what tax bill they are likely to face at the end of the year, which has to be better than waiting until accounts have been compiled and agreed, which could be quite close to when the tax is due.
New systems are never popular
For those of us that remember the introduction of self-assessment, they will recall how many people thought it would never work and how scared some people were of it. Now it is the norm and only those of us with long memories can recall any other way.
MTD will soon become the accepted way, especially as even without its implementation more and more businesses are becoming increasingly digital. Submitting VAT returns, dealing with PAYE and even their accounts through MTD will soon become the norm, just as self-assessment did and even VAT after it was introduced.