Economic benefit may not be all that it seems
HMRC’s final evaluation of making tax digital (MTD) for VAT perhaps unsurprisingly comes up with a positive overall conclusion. I’m sure there is some spin here but the underlying research seems rigorous and shows at the very least that the introduction of MTD for VAT has not been the disaster that some predicted. I have no doubt that this research will embolden HMRC’s confidence in rolling out MTD for income tax. But I would sound two notes of caution.
The first is the obvious point that VAT compliance was (largely) a quarterly process anyhow so the changes required for MTD for VAT were much less significant than they will be for MTD for income tax, where millions of businesses will have to cope with quarterly reporting for the first time. This is likely to be more disruptive and expensive in the short term, even if it does produce longer-term benefits.
The second concerns extrapolation. On average, the time saved by business was estimated to be between 26 and 40 hours a year. If we take the midpoint (33 hours), that represents about five minutes a day. Anybody who has ever completed a time sheet knows that these sorts of tiny amounts just disappear in the rounding – there is not really any extra time released to do any other meaningful work. Yet on the basis of these figures the report suggests that there is an economic benefit of between £603m and £915m each year. I can see that sort of figure being used widely as a measure of the success of MTD – look out for officials using it before the PAC – but in reality all it means is that a busy business owner might be able to have a cup of coffee while only doing one task rather than two. It will just disappear into the ether.
If you do one thing…
There’s still time to submit your entry for the Tolley’s Taxation Awards (www.taxationawards.co.uk).
