Christmas Adjournment

Theresa Villiers Excerpts

Tuesday 20th December 2016 Commons Chamber

[Mrs Theresa Villiers (Chipping Barnet) (Con)]

I would like to spread some Christmas cheer by talking about the tax system, but first I would like to join others in wishing you, Mr Deputy Speaker, all right hon. and hon. Members and all staff of the House well for the Christmas period.

I want to detain the House briefly to talk about HMRC’s Making Tax Digital programme, an important issue I think we should reflect on over the Christmas period. Before doing so, I draw the attention of the House to my entry in the Register of Members’ Financial Interests as a recipient of rental income from property.

Digitisation of the tax system—the aim of the MTD programme—is worth while, but I have genuine concerns about the proposals as they currently stand. I have been contacted by a number of constituents, including Mr Nick Danan, whose email prompted me to make this speech today. A key issue is the proposed obligation, under the programme, to send a quarterly report to the tax authorities. This is to be accompanied by so-called real-time reporting of transactions, although exactly what that will involve in practice is not yet clear.

At the moment, the obligation is planned to be imposed on all self-employed people, small businesses and buy-to-let landlords with an income or turnover above £10,000. A relatively recent concession by Her Majesty’s Revenue and Customs is that implementation will be deferred for a year for unincorporated businesses with a turnover over the £10,000 threshold and below unspecified new thresholds. It is very welcome that HMRC has been listening and that it has made that move, but it does not address all the concerns my constituents have with the proposals.

I welcomed the chance to meet the Federation of Small Businesses when it visited Parliament on 29 November to present a report it had commissioned on the Making Tax Digital programme and to explain the changes it believes ought to be made to the programme before it is put into legislation next year. Yesterday, I met Louise McMullan and Alan Lean of Equity to talk about the problems their members in the entertainment industry would have with the programme. The FSB estimates that the current proposals will cost businesses on average £2,770 a year in addition to the £3,600 they already spend on help and advice with the tax system. Such figures are always challengeable and debatable, but I am worried about imposing this new cost on entrepreneurs who are such a fundamental part of economic success.

Treasury Ministers are very clear that they expect their MTD project to save money for businesses, but I find that hard to reconcile with real-time transaction reporting and quarterly updates. I am deliberately choosing not to call them quarterly tax returns, since Ministers are very clear that these updates will not be the same as a traditional annual tax return. However, whether they are updates, reports or returns, it seems inevitable that they will cost businesses time and money to prepare.

Now I fully accept that HMRC intends to try to ensure that compiling quarterly reports is a simple process that does not need professional advice. The problem is that the legal, financial and reputational risks of getting reports to HMRC wrong are so serious that many or most small businesses, self-employed people and landlords affected will probably ask their professional advisers to compile these new quarterly reports in the same way they do an annual tax return. That would involve significant costs. As a Government and as a party, we have a strong commitment to try to minimise the cost of tax and regulation for business, and I feel that, as it currently stands, the Making Tax Digital programme is hard to reconcile with that commitment.

I bear in mind the fact that we are already asking business, large and small, to take on significant responsibilities on a range of social, economic and environmental goals, including complex rules on employment protection, payroll, VAT, auto-enrolment for pensions, action on climate change and so forth: the list is a long one. Those are important objectives that the House should support, but they tend to come with obligations for people just trying to get by and make an honest living.

When this measure comes before us in the Finance Bill next year, we should think very carefully before we impose further burdens on people who are so crucial to job creation and general economic success. We will need to ask ourselves two questions: are these burdens necessary and proportionate; and can anything further be done to mitigate them? We should bear in mind that the £10,000 threshold will bring many millions of people within the scope of these new reporting requirements, including many of our constituents. I hope that before Ministers bring this legislation forward next year, they listen carefully to the responses to the consultation and representations made by organisations such as the Chartered Institute of Taxation, the FSB and Equity.

On the particular issue of the threshold, many feel that £10,000 is too low. There is a concern that it is disproportionate to impose these new burdens on microbusinesses or very small-scale buy-to-let landlords. I hope Ministers will consider an increase to align the MTD reporting threshold, for example, with the VAT threshold, which is currently around £83,000. After all, VAT-rated businesses already deal with regular reporting requirements, so the impact of this new scheme would be less disruptive for them. Making these new reporting obligations voluntary for businesses under the VAT threshold would seem a reasonable way forward. HMRC clearly believes its system will be successful and easy to use, so it should not shy away from a voluntary approach. If the system is to be as user-friendly as it believes it will, people will want to use it and will not need to be compelled to do so. That approach is taken in Australia, for example.

The Chairman of the Treasury Committee pointed out the concern in his letter to the Chancellor in September. He said that the new requirements for digital recordkeeping and reporting go further than simply entering a handful of totals into an online return. In his letter, my right hon. Friend the Member for Chichester (Mr Tyrie) described what was required as

“tantamount to prescription by HMRC, for the first time, of a particular form in which accounting records must be maintained.”

I thus hope that one key thing we will hear from Ministers when they return here next year is clarity on exactly what quarterly real-time reporting will be required by MTD. I hope that the Government will consider my constituent’s proposal that it should not go beyond a simple statement of income on expenditure.

HMRC’s commitment to free digital tools for the smallest businesses to help them with this new approach is welcome, but so far we have had only rather limited information on what that software will be and for how long it will remain free to use. A point raised with me by Equity yesterday is that many of its members are particularly concerned about whether the free software will enable them to report overseas earnings. I hope that we will hear from Ministers next year about their confidence in the security of HMRC systems. People will be asked to accommodate a vast amount of data, far more than at present, and I think people providing those data will want to be confident that HMRC’s computer systems are stable and resilient enough to hold this vast increase.

I also hope that Ministers will be able to reassure us about how the new reporting obligations will compare with universal credit monthly reports. Many in the self-employed sector will receive universal credit and be subject to the Making Tax Digital obligations: avoiding unnecessary duplication would be very helpful. Perhaps most important of all, a longer implementation period with extensive piloting would really help to ease the transition to a genuinely digital tax system. It also makes sense to start with the larger businesses, which are probably better able to cope, rather than, as HMRC currently proposes, starting with the smallest.

The Government were very sensible to pilot the new universal credit system extensively and introduce it gradually over a period of years. Making Tax Digital will be a truly massive IT project, and taking time to get it right is both justifiable and sensible, even if that postpones some of the advantages for the Government. I fear that if HMRC presses ahead with MTD in its current form, that will require a very significant change for thousands of self-employed people who may not run digital accounts, or, in some cases, may not even use computers very much.

Of course there are clear advantages in moving such people towards a more systematic approach to their tax and accounts and away from the so-called shoebox model approach, but if HMRC is to achieve behaviour change of that magnitude, it will take some time. There can be little doubt that millions of people are due to face a radical change in how they deal with their tax affairs, and that they do not yet have a clue about what is coming down the track towards them. Allowing enough time to enable the delivery of the programme to run smoothly would be a wise choice on the Government’s part.

I believe that most people should welcome and support the goal of a digitised tax system. I have no doubt that a number of elements of HMRC’s Making Tax Digital programme will make the tax system easier to use, help to reduce errors, strengthen the tax base and support the public finances. Those are all aims that the House can support, and I certainly support them, but there are still real concerns about the cost impact of the programme on self-employed people, landlords and small businesses. I believe that those problems can be resolved, but, although there is still time to sort them out, there is not a great deal of time.

I am not someone who rushes to highlight potential risks or problems with Government initiatives, but I felt that I ought to raise these concerns on behalf of the many people in my constituency who will be affected. I sincerely hope that Treasury Ministers will consider the points that I have made today as they embark on the final decisions that are needed on Making Tax Digital before presenting the Finance Bill 2017 to the House.

[Several hon. Members rose—]