business_digitalisation_RTI_HMRC

Press release: New review highlights risks of underestimating business digitalisation costs

21 December, 2017

The Association of Taxation Technicians (ATT) is urging the Government to apply lessons from the introduction of ‘real time’ payroll reporting1 to their Making Tax Digital (MTD) programme.  This follows the publication earlier this month of HMRC’s Post Implementation Review into the Real Time Information (RTI) programme.2

The review of RTI highlights that the programme brought benefits to HMRC in terms of cost savings and reduced fraud and error.  However, it also notes that many employers feel that RTI is an additional burden, with limited benefits to them. Significantly it acknowledges that HMRC ‘did not sufficiently understand the cost to small business of real time reporting.’3 Both the transitional and ongoing costs for small businesses for providing RTI were higher than predicted by HMRC.  The review also acknowledges failures in reaching all employers with relevant RTI communications and guidance.4

Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:

“This report is timely, as businesses are facing substantial compulsory digitalisation of accounting and tax practices with the introduction of the Making Tax Digital progamme5. For most businesses, MTD will be an even bigger cultural shift than 2013’s real time payroll changes as it will require them to digitise their underlying business records, often incurring significant costs in doing so.

“As MTD progresses, the experience and knowledge gained from the introduction of RTI should be invaluable. It is vital that HMRC convert into action in the MTD programme their acceptance in the RTI Review that there are important lessons to be learned on consultation, communication and implementation.

“In particular the Government should reflect on the acknowledgement in the RTI report that HMRC did not sufficiently understand the costs to small businesses of real time reporting, and consider whether they are making the same mistake again with MTD. Many businesses are anxious about the new MTD requirements and regard the Government’s estimates of their costs, in both time and money, as unrealistically low. HMRC need to ensure that they are factoring in all the set up and ongoing costs for this group to give them a realistic sense of the potential cost to business.  The cost to businesses needs to be proportionate to the benefits HMRC are expecting from the changes. 

“For small businesses in particular, there is a further lesson for HMRC from the introduction of RTI about the importance of appropriate targeting of communications and guidance.  Recent research6 has already highlighted that many small businesses remain unprepared for the introduction of MTD and that communications and guidance need to reach all affected by the programme.”

Notes for editors

  1. The Real Time Information (RTI) programme was the biggest change to PAYE since 1944.  Under RTI, employers are required to file their payroll information electronically on or before payment to the employee- i.e. in real time.  The requirement took effect in April 2013, though there were initial relaxations for smaller employers.
  2. HMRC’s Real Time Information Programme: Post Implementation Review report was published on December 7th 2017. It aims to see if, three years on, the RTI programme has achieved what it set out to do and what can be learned from the experience.  The report can be found here.
  3. Page 38 of the RTI Review notes: “However, we acknowledge the reservations expressed by some employers, agents and their representative bodies that we did not sufficiently understand the cost to small business of real time reporting.”
  4. Page 2 of the RTI Review’s Executive Summary notes “We acknowledge that our communications and guidance are not reaching all employers, with some small businesses struggling to understand their reporting obligations and the consequences of failing to meet them. In response, we have committed to thinking more innovatively about how best to reach smaller employers and give them the clarity they need, not just in RTI, but across all of our transformation plans.”
  5. Under Making Tax Digital (MTD) businesses will be required to keep digital records and make quarterly reports electronically to HMRC.

MTD was originally to be introduced for income tax from 1 April 2018.  However, on 13 July 2017 the Government announced that it would be delaying that part of the introduction of MTD.  Under the new timetable:

  • Initially only businesses over the VAT threshold (currently £85,000) will have to keep digital records.
  • Digital records will only be required initially for VAT purposes, and only from April 2019.
  • Business will not have to keep digital records or report quarterly for other taxes (e.g. income tax and corporation tax) until April 2020 at the earliest.

More information on MTD can be found here.

  1. ATT’s press release on the report from Ipsos MORI, Making Tax Digital for Business: Survey of small businesses and landlords can be found here.