HMRC and organisations representing small businesses continue to disagree about the impact of MTD on the self-employed, landlords and sole traders.
HMRC has always maintained that MTD will bring cost savings for small businesses whereas bodies such as the Federation of Small Businesses (FSB) have been equally adamant that the reality will be different. FSB claims that there will be considerable costs incurred rather than savings.
HMRC has listened to a number of professional consultees and has subsequently revised the amount of savings expected, indicating that they will not come into effect before 2021. HMRC now expects that small businesses will make average savings of £280, and accepts that there will be set up costs, although not as high as the figure of £2,770 cited by FSB.
MTD pilots are due to begin and the system will be live in April 2018, so in order to decide where the truth lies, the Treasury Select Committee asked HMRC and FSB to provide detailed evidence for their statements.
FSB commissioned research to look at the current costs of reporting tax information. The information was extrapolated and multiplied by a factor of three. This figure was based on HMRC’s assertion that MTD would, indeed, be simpler. However, with four reporting periods, there are some who consider that the extrapolated figures should have been multiplied by four, or even five to reflect the added administrative burden.
HMRC used a long-standing method of calculating the burden of government red tape, which is used across all departments. Their figures were complex, but credible and hinge on the assertion that 80 of the current obligations for reporting tax will be removed, reduced or affected when MTD is in place.
Who is correct? FSB with their claim that the administrative burden will increase with accompanying costs, or HMRC who assert that MTD will simplify the tax system, thereby reducing costs?
The Treasury Select Committee has given both sets of results to the Administrative Burdens Advisory Board (ABAB) and asked for their opinion. As an independent organisation with considerable insights into all aspects of small business, their conclusions are eagerly awaited. Their report will reflect the extent to which HMRC really understands the needs and concerns of all small businesses and takes this into account when making policy.