Peers grill HMRC’s Making Tax Digital team over software development plans

Written by Rebecca Hill on 22 February 2017 in News

Civil servants running HMRC’s digital tax reforms have defended the timeline of the plan, but admitted that some software suppliers will not have products ready until October – six months after the pilot of the scheme is due to start.

Middleton giving evidence to peers on the Finance Bill Sub-Committee - Photo credit: Screengrab, Parliament TV

The reforms, which are laid out in the draft Finance Bill published last month, will require businesses to keep digital records of their finances and file quarterly reports to HMRC.

The bill said that the changes will be phased in, with the earliest start date being income tax in April 2018 – despite the House of Commons Treasury Committee previously branding this timeline over-ambitious and “wholly unrealistic”.

But the civil servants running the £227m programme today defended the decision to push ahead with this timescale in front of the House of Lords Finance Bill Sub-Committee.

Giving evidence to the committee, Jim Harra, director general for customer strategy and tax design at HMRC, said that the department’s consultation on the plan was “the richest I’ve seen the department have”.

He said he recognised that people had concerns about the timetable, but that the department would “learn very quickly” from the yearlong pilot scheme that is due to run from April 2017.

This was echoed by Making Tax Digital programme manager Theresa Middleton, who told the peers that by April 2018 the authority would have “much more confidence” in the reforms and would have made any necessary changes.

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The witnesses also revealed more information about the pilot, which they said will involve “hundreds of thousands” of businesses across a range of sizes, shapes, digital capabilities, attitudes and aptitudes.

Middleton stressed that the pilot was not just intended to help HMRC test its own systems, but would be a chance to look at customer support and the usability of the products the software industry was developing to allow to send the quarterly returns to HMRC automatically.

However, Middleton also revealed that there would “not be a full range” of software and apps available before the pilot started in April 2017.

The “worst-case scenario”, she said, was that some providers’ software would not be ready until October, but added that there would still be a range of products available for smartphones and desktop computers during the trial.

“The market for software is evolving quickly at the moment, with the rise of cloud-based accounting, the ubiquity of smartphones, tablets and other devices,” Middleton said.

Some of the “established players…might not be ready”, she said, because they tend to have a longer lead-time than the newer entrants.

She added that HMRC had “left it to [suppliers] to decide when they’ll be ready, what products they’ll have, what their price points will be”, but that all suppliers had been given the same information.

Middleton emphasised that all the suppliers would have products ready by the go-live date of April 2018, but that the pilot would still go ahead in April 2017, saying “we cannot move at the pace of the slowest mover”.

‘We’re a tax authority, not a software provider’

The programme manager was also grilled on the pricing plans for the apps, which will see the smallest companies with the simplest tax affairs given free software, while all the others will have to purchase their own.

Denise Kingsmill, a Labour peer, asked whether it was “exploitative” that businesses would have to pay private companies in order to comply with a new scheme that was being imposed on them by the public sector – and why HMRC wasn’t developing its own free app.

In response, Middleton said that industry “had stepped up” to offer free software for the businesses as set out by government, but that “they hope, like all good business people, they will make a return” on their investment in the products they are developing.

“If [HMRC] did an app, we’d update it once a year and it would be one-size-fits-all. The software industry are able to tailor products, make them specific – there’s a whole range of things they can do and we cannot,” she said. “We’re a tax authority, not a software provider.”

Harra added that it was for businesses to bear the costs of complying with tax laws and that if HMRC began developing its own apps or software it would damage the market.

The peers also asked about the security measures in place for the software, to which Harra said that they would have to comply with the security standards set out by government and that a list of compliant software would be listed on GOV.UK.

Elsewhere in the hearing, Harra said that there were plans to build on the Making Tax Digital plans in the future, for instance by using the data gathered to identify and alert businesses to “opportunities in the tax system they might not have taken advantage of”.

The aim of the tax reform plan is to reduce the amount of tax that is not paid by businesses, and focuses on the estimated £8bn chunk that is owed by smaller businesses and is not paid to error and carelessness, rather than intentional avoidance.

The government has estimated that the reforms will save £945m by 2020-21, and £2bn by 2021-22, and that it will cost businesses, on average, £280 to transition to the new system.

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