Making Tax Digital – and more difficult: HMRC’s new ruse

    2 March 2019

    Before I begin, I want to make it clear that I have nothing but respect for Her Majesty’s Revenue & Customs: fine, upstanding people who want only to ensure that the government collects the proper and fair amount of tax it needs to finance all those things we love, such as HS2 and subsidies for offshore wind and vital foreign projects like the one that funded the Ethiopian Spice Girls.

    That said, I have to ask: what is it you hate about us self-employed? Or rather, why is your boss Philip Hammond so determined to make our lives so miserable, first with his mooted National Insurance hike (cancelled only after protests from Tory MPs), then with his vindictive IR35 tax laws (aimed at reducing the number of people with self-employed status), and now with this wretched new programme called Making Tax Digital?

    ‘The point of Making Tax Digital isn’t to make life difficult for businesses,’ an online guide attempts to reassure me. That probably wasn’t the intention but it’s definitely going to be the net result. From April this year, all those of us with taxable turnover above the £85,000 VAT threshold will be required to start using Making Tax Digital (MTD)-compatible software to file our accounts. Initially, this is just for VAT returns, but in time we’ll have to file tax returns, too, in this way — not just annually, as before, but quarterly. And we’ll have to spend about £100 a year on the actual software — or pay our book-keepers and accountants a bit more — to ensure we’re legally compliant.

    From a Chancellor’s perspective, I can see it makes perfect sense: HMRC will be able to collect money sooner and more efficiently; it will make it easier to pry into our business affairs; and it will certainly force us to — as that same advisory site hilariously put it — ‘think about tax more often’.

    Thinking about tax more often is the very last thing we self-employed want to do. The reason most of us are self-employed is that we lack the temperament and the maths skills to bag ourselves a nice, safe, sensible PAYE job. We’re creatives, free spirits, unemployables. We’re prepared to endure the nail-biting, feast-or-famine insecurity of our holiday-, pension-, perk- and sick-leave-free careers because we understand that we’re fundamentally unsuited to the real world.

    And now here’s Phil Hammond bringing us down to Earth with a bang. His spying software is going to snoop on our every move, like the Eye of Sauron. Either we’re going to be forced to worry a lot more about tax than we used to — or we’re going to pay our accountants more to do the worrying for us.

    On top of that, there’s the concern of how they’re going to secure all that intensely personal data and how much it’s going to cost. The government, does not have a particularly impressive track record with large-scale IT projects, as we’ve been reminded by the complications with Universal Credit. According to the National Audit Office this was beset by ‘weak management, ineffective control and poor governance’, with £34 million written off on failed IT programmes.

    Another problem, an accountant friend disappointingly confirms, is that it’s going to be much harder creatively to reduce our tax liabilities. Suppose, for example, you’ve had a really good year and you want to reduce your tax burden at year end by putting some of the profits into a new computer. Under the old system, canny year-end adjustments wouldn’t have been noticeable but now they’re going to stick out like a sore thumb, perhaps attracting closer investigation. A perfectly legitimate tax-avoidance tactic will be rendered all but unthinkable.

    Of course, that was the plan all along. This Conservative-in-name-only government, especially since Spreadsheet Phil became Chancellor, has made no secret of its desire to squeeze our pips till they don’t just squeak but scream for mercy. By the middle of last year, the TaxPayers’ Alliance reported, the UK tax burden was at its highest in 49 years — equivalent to 34 per cent of GDP. That’s only 1 per cent short of the 35 per cent of GDP it comprised in 1969-70. That was the tax regime which inspired the Beatles to write their fiscal cri-de-coeur,  ‘Taxman’, and which forced the Rolling Stones to up sticks to the South of France to record Exile on Main Street.   Now here we are all over again, only this time without a decent soundtrack.

    We self-employed are being made to suffer most because we’re an easy target. Though there are 4.8 million of us and though we contribute £271 billion to the UK economy every year, we are not represented by powerful trade unions like the five million who work in the public sector, so the Chancellor considers us fair game. This is all very disappointing, especially to those of us who voted Brexit imagining that it would be a prelude to a freebooting future as the Singapore of Europe, where we millions of flexible labourers could act as the engine room of fast-growing, regulation-lite, low-tax economy. Fat chance of that, eh, Phil?