Making Tax Digital: A Costly Failure or a Necessary Change?

Mark Morton shares his reaction to a recent BBC Radio 4 Money Box interview on Making Tax Digital (MTD), questioning its effectiveness, highlighting concerns about low taxpayer engagement, and discussing whether the initiative is delivering any real benefits for self-employed businesses and HMRC. Based on current uptake figures and industry feedback, Mark argues that MTD may be creating additional costs and complexity without achieving its original objectives.

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Transcript

Hello and welcome to this Mercia podcast. It's Mark Morton here. Middle of a heat wave. Everything getting a bit tense and start of a new working week. And what I generally do on a Sunday evening I finished with my TV subject to World Cup, of course about nine o'clock. So I start to get into my normal routine of read a book which lasts about 10 minutes if I'm lucky, but there you go.

But Sunday evenings are special because at nine o'clock on Radio four they have Money Box, which is Radio Four's Money Programme. And I switched it on last night ready to settle down and just start to we into my evening routine and dozing off. Unfortunately, blood pressure started to rise. Quite a revealing interview with HMRC.

And I don't wanna do the Gentleman disservice, I've have forgotten his name and I've forgotten his title, but I do remember his title was very long and sounded tremendously important. But this gentleman was in charge, essentially of the MTD project. And what was quite interesting is money Bots had picked up that there's 860,000 self-employed people supposed to be registered for MTD.

And of course, as we sit here now, the first quarterly return of estimated rubbish, which served no purpose is due to be filed. And what Money Box have picked up is 400,000 self-employed people haven't actually registered. So they were trying to quiz this gentleman and say are you a little bit concerned that pretty much half the people who should be registered and filing in the near future are not?

And he said not really. We always knew it would be a slow take up, which is why we've got no penalties. Of course, on the flip side of that, if, there's no penalties, one would imagine there's not a great incentive to file on time. But anyway that was the first thing. The second thing was then a number of interviews with some small self-employed businesses.

A conductor I remember who was saying sort of, there's so many software packages out there, it's costing me money. And I don't quite see what the point of doing this is. And of course, that conductor has hit the nail on the head. Those of you that have seen me electro of the years or whatever will know my thoughts on this.

MTD is the tax version of HS two. It isn't doing what it was originally designed to do. It will not do what the revenue currently says it's supposed to do. And, it imposes a lot of cost on private businesses for no apparent reason. It's quite interesting looking at some of the consultation that's come out recently the tax simplification measures.

But if you go back with MTD into the midst of time under George Osborne, one idea was essentially to say a bit like VAT, we want self-employed businesses to prepare their tax figures on a quarterly basis and pay the associated tax on that basis. Now, of course, as soon as you start to realise that most self-employed people can't prepare a set of tax adjusted accounts let's go back a stage.

They can't prepare a set of accounts, let alone a, a tax adjusted set of accounts. Then the whole idea that you can pay your tax quarterly disappears out the window. So that link with payment was broken many years ago, and if we stop there for a minute, in this day and age, I have no particular issue with the revenue saying we want self-employed tax liabilities paid more regularly, whether that's quarterly.

It's interesting it seems to be being raised with some of the tax simplification measures that actually the revenue is suggesting that we will divide your essay liability by 12 and correct it by direct debit, which again, I have no great issue with and I suspect a lot of self-employed people wouldn't.

The issue with MTD is that this great fallacy that trying to get self-employed people to keep more regular records will somehow lead to less tax errors and ultimately an increase in tax yield. That has not been proven at all by the one study I have seen into VA for MTD, for SMEs that study by the revenue suggested or, or accepted that in fact the revenue could have made a loss on this.

So it's one of these crazy interviews where you listeners say the sort of accepting the point that self-employed people will, are not doing it currently when asked what the main purpose is we'd like, rev, we'd like taxpayers to, to keep their tax records a bit nearer to, the filing date.

But of course, the real filing date is not until the following 31st of Jan. So, again, it, it was really interesting this interview and if you haven't listened to Money Box, just listen to a recording of it on Radio four, because it seemed to be that the revenues only selling point was to try and get self-employed people to keep records on a more real time basis.

What you're gonna find ultimately is they keep their invoices in a box or in a glove compartment like everybody else, and desperate desperately type that information into a spreadsheet, which then bridges into the revenue software. And, it's no more accurate than it ever was. And of course, it isn't being adjusted for tax.

And a lot of self-employed people would not know what to adjust for tax because ultimately guess who's doing it, the accountant at the end of the year, so anyway, that was my little start of a 10 for the month of July. If you've got any questions that you're still not clear about with MTD, then please feel free to listen to or watch my colleagues.

Fantastic. Course on MTD Norman has become a real expert in the ins and outs of MTD and what he will cover within that is also the digital exclusions and the, I will just finish on this. The revenue said that they currently had 7,000 applications for digital exclusions and granted five. So for those of you that are cynical as me and say there's no point.

Ask an exemption, you won't get it. Maybe there is actually, 'cause that's a pretty high strike rate it surprised me the revenue would grant that many. Anyway, on that happy note what you'll find in due course is MTD is scrapped as a complete failure and replaced by something that is better and more appropriate.

But in the meantime, we will trundle along as a profession, doing what we're required to do because we're British. But a very strange old system, MTD. Anyway, happy hunting and yeah, I look forward to speaking to you again on the next Mercia of Podcast. Take care everybody.