Making Tax Digital

Peter Dowd Excerpts

Tuesday 19th February 2019 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

I thank the Financial Secretary for providing a copy of his statement in advance, and for his reference to Henry VIII. I must say that the Government are obsessed with Henry VIII, and with all the powers that they are using in that connection.

As has been recognised by the Federation of Small Businesses, the Labour party has consistently called on the Government to rethink their making tax digital policy, not least because our manifesto commits us to scrapping quarterly reporting for companies under the VAT threshold. The Opposition’s concerns are therefore well versed. We have raised them during numerous debates in relation to numerous pieces of legislation, announcements, delays and, indeed, U-turns. Unfortunately, we are here again today, addressing the Government’s absolute failure to handle the digital transition—a failure that has serious consequences for businesses throughout the country.

Let me make it clear that we fully support digitalised tax reporting, which we all agree has the potential to drastically reduce the time that individuals and business owners have to spend filling out long and complicated tax returns. We are also aware of the productivity gains that it will bring, to which the Financial Secretary referred. If handled correctly, it could make positive changes in the way in which people report their tax position for decades to come. However, the stakeholders to whom we have spoken in the business sector and the tax community continue to raise deep concerns about their ability to be ready for digital VAT reporting, and they have expressed those concerns to the Treasury Committee.

Owners of small and medium-sized businesses are already worried about the stark changes that they will have to make in 2019 to prepare for Brexit. They are worried about the possibility of a no-deal scenario and the overnight effect that it would have on costs and supply chains. There is also the potential introduction of tariffs and the impact on staff who are EU citizens. The Government have continuously failed to provide the certainty that is needed, so it is little wonder that business confidence is pretty low.

What is more, few people inside or outside the Government believe that HMRC is actually ready. To the best of my knowledge, it has the same problems as many of the businesses that will be required to begin digital reporting in 2019. Those concerns are echoed by tax professionals, who emphasise that the current timetable is unrealistic and unworkable for HMRC and the business community.

That is why the Opposition propose a delay in the introduction of digital reporting for VAT and income tax purposes until the end of the current Parliament in 2022, assuming that it lasts that long. Such a delay would give HMRC and small and medium-sized businesses the time that they need to prepare adequately and to implement new software in their businesses. Notwith- standing today’s announcement, there is a risk that the Government’s current timetable will bring chaos and confusion unless the concerns of the business community are fully addressed.

I should be grateful if the Minister would answer the following questions. Are any further costs anticipated as a result of today’s announcement? Is the delay in the implementation of making tax digital in any way connected with the so-called estate transformation—or downsizing—of HMRC, which has seen 170 regional offices merged into 13 “regional centres”? Is there not a need for in-house provision of making tax digital software, given the bespoke nature of HMRC’s UK-specific needs and the need to co-ordinate with other Departments? Under what legal authority or process has HMRC outsourced provision of that software?

A total of 0.5% of eligible businesses—one in 200—have signed up to making tax digital. Is the Financial Secretary confident that all the businesses will have signed up by the end of the Parliament? He says that he wants to listen to business, but I am afraid he is not listening hard enough, and the rosy picture that he has painted is not quite as rosy as he thinks. He need only ask businesses.

[Mel Stride]

I thank the hon. Gentleman for his response to my statement. I am pleased that he, like me, recognises the value of the digital processing of tax returns. Indeed, he made a specific and welcome reference to its productivity advantages. However, he also referred to what I think he suggested were serious failings in our approach, suggesting that it was not the right approach. I could not disagree more. In my statement, I was at pains to emphasise the proportionate and measured way in which we had approached these matters. I said that when I first became Financial Secretary to the Treasury, I decided to delay the roll-out of MTD so that it related only to VAT-registered businesses by 2019, and carved out the very smallest businesses and individuals from these measures. Indeed, I gave reassurances to the House and the business community that nothing will be introduced in terms of income tax and corporation tax any earlier than 2020 and that we would see how the roll-out of the VAT MTD went before we took any further decisions in that respect.

The hon. Gentleman raised several specific questions, which I will address in turn. He asked whether there will be any additional costs as a result of today’s announcements to those businesses in scope of MTD, and the answer to that is most certainly not. He might be familiar with the estimates already produced that suggest that on average a business in the UK that is in the scope of these measures will face additional costs of some 60p per week, and that does not take into account the efficiency gains that can be expected or indeed the fact that in many cases those costs will be able to be written off against taxation.

The hon. Gentleman referred to the continuing estate transformation work and asked whether there was any link between that and MTD. I think there is in the sense that we have a clear drive to make sure that HMRC is a lean and efficient organisation itself in the 21st century and that its estate is not scattered across the country in numerous offices, some employing fewer than 10 staff, but is in state-of-the-art hubs where digital and IT approaches can be maximised.

The hon. Gentleman asked whether we had considered developing in-house software for MTD, and I think he might have been urging us to do so. I know that it is a passion of the Labour party to centralise and have monolithic organisations that do all the organising at the centre, but that is not the way of us on this side of the House; we believe that the market generally knows best, which is why I was delighted to have been able to announce that we have no fewer than 160 different competing products, and that number is growing by the month.

The hon. Gentleman asked whether the Government were confident that we would be signing up the right number of companies in time, and I would make a few important points on that. First, there is no cliff edge on 1 April; that is the date at which companies and individuals will be required to keep digital records, but for most companies the first time they will have to submit a VAT return under MTD will be for the first tranche around 6 August and for subsequent tranches in the months following that date. There is plenty of time for companies to sign up and get involved. Secondly, as I have already elaborated, we will take a proportionate, light-touch approach to penalties, working with companies and businesses to make sure that MTD roll-out is a success.