Digital Taxation

Damien Moore Excerpts

Tuesday 27th March 2018 Westminster Hall

[Damien Moore (Southport) (Con)]

As a member of the Science and Technology Committee, I am delighted to contribute to this debate and champion the transition to a digital form of taxation. The issue here is not only the businesses that we will be looking to tax, but the form that our taxation regime takes. Far too often, Governments are slow to modernise and adapt to the times, and I am glad to see that my colleagues in the Treasury have chosen to focus their attention on this area. I will follow the results with great interest.

Although I would never encourage digitalisation simply for its own sake, developments over the last five years have made the creation of a workable, transitional period leading to digital taxation an absolute necessity. We live in an age when cryptocurrencies, challenger banks and blockchain technology are taking off, while e-commerce continues its shake-up of the retail sector. Furthermore, the closure of local bank branches en masse around the country has resulted in individuals having to adapt to a rapidly changing pecuniary landscape. Her Majesty’s Revenue and Customs can and must keep pace with the innovations of Silicon Valley and Tech City, as more and more tech companies enter the financial arena.

From a purely practical standpoint, the current annual system of tax returns is an administrative burden and an overly lengthy process for businesses. The programme of reforms will contribute to the HMRC target of reducing tax administration costs by £400 million by the year ending 2019-20. The old system was far too complex, and businesses would often only know their tax liabilities at the end of a financial year, which imposed uncertainty on them and ultimately prevented them from planning for the future.

As I understand it, by 2020, businesses, self-employed individuals and landlords will have the option of keeping track of their tax affairs digitally, updating HMRC at least quarterly via their digital account. Those quarterly updates will not amount to four separate tax returns in a year, despite a degree of uncertainty on that point. The Government have assured us that bureaucracy and constant form-filling will become a thing of the past, with the information that HMRC requires being automatically uploaded on to people’s digital accounts.

Businesses will be required to use the Making Tax Digital for Business system only from April 2019, and even then only to meet their VAT obligations. That will apply to businesses with a turnover above the VAT threshold; the smallest businesses will not be required to use the system, although they can choose to participate voluntarily. I believe that businesses with a turnover of below the £85,000 VAT threshold can also be great beneficiaries of digital taxation, and I hope the Government will give a lot of thought to the bespoke and innovative ways in which small businesses will be able to engage with these new foundations of tax.

Currently, most taxpayers cannot see a single picture of their liabilities and entitlements in one place. However, by 2020 customers will be able to see a comprehensive financial picture of their digital account, as they can with their online banking. HMRC customers and their agents will be able to interact with HMRC digitally and at their convenience. They already have access to a digital account, which will allow them to access an increasingly personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging. Digital record-keeping software will be synced with HMRC’s systems, allowing customers to exchange information directly from their software. I welcome these innovations and can see the utilisation of this system eventually being as natural as online banking.

The Government have said that they will not widen the scope of Making Tax Digital beyond VAT before the system has been shown to work well. I, for one, will be following the development of the programme throughout its implementation, with the expectation that this change will result in the desired outcomes. There will inevitably be some kinks in the system, and I hope that they will be ironed out. However, make no mistake: this is a progressive move that will encourage greater engagement with HMRC, save both the Government and the taxpayer money and ensure that businesses, whatever their size, are not shackled by bureaucracy and burdened by paperwork.