Treasury committee inquiry: Taxing multinationals and making tax digital

It may seem odd to put these two issues together but MPs on the Treasury committee have launched very wide-ranging inquiry into the UK’s tax system.

The committee has invited submissions on the making of tax policy, the problem of the shrinking corporate tax base and the administration of tax. This last item will address two key questions:

  • Has the merger of the Inland Revenue and Customs and Excise been a success, and have there been too many subsequent reorganisations within HMRC?
  • Are the plans for “making tax digital” adequately designed and acceptable?

MPs debated at length this week a petition, calling on the government to “scrap plans forcing self employed & small business to do 4 tax returns yearly”, which now has more than 110,000 signatures.

The government’s response to the petition was that

“Making Tax Digital will not mean ‘four tax returns a year’. Quarterly updates will largely be a matter of checking data generated from record keeping software or apps and clicking ‘send’.”

During the debate Chris Leslie, the former shadow chancellor, suggested that “people could be doing these things five times a year – there would be one big final return and these updates along the way”. He asked:

“Are we getting rid of the annual tax return or not?”

It was a good question because we have been told that we can expect “the end of the tax return”.

David Gauke, financial secretary, replied:

“The traditional annual tax return, we can get rid of. What I am saying is that, rather than starting largely from scratch and pulling all the information together, businesses that need to make adjustments at the end of the year will have already done much of that work. Now, as I say, the tax system remains an annual system, and one needs to be able to look at the year as a whole for things such as capital allowances. However, it is worth bearing it in mind that the capital expenditure of the vast majority – something like 98% – of businesses would fall within the annual investment allowance of £200,000, so that is not necessarily too much of an issue for them.”

There will be much uncertainty for small businesses during what will be a very long consultation period.

2 thoughts on “Treasury committee inquiry: Taxing multinationals and making tax digital”

  1. “The traditional annual tax return, we can get rid of.”

    As I’ve been saying elsewhere, this looks very much like large company quarterly instalment calculations, albeit with some reporting to HMRC rather than keeping it internal: you estimate your taxable profits quarterly, and then true it all up at the year end.

    I suspect the only real problem is HMRC’s underlying assumptions, which seem to be:

    – It is practical for a small firm to keep its accounts fully up to date
    – It would be useful to force them to do so
    – The information sent over would be meaningful, despite having had no processing at all

    Tidy those up a bit, and have some rather simpler requirements for reporting (of numbers which are not taken as fact!), and you may have a winner.

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