HMRC’s digital myth-understanding

26 January 2016

Andrew Hubbard

When HMRC announced last year that businesses would be required to update them on a quarterly basis via their digital tax account, there was uproar. Many assumed this would mean businesses would have to complete four tax returns a year and, as a result, the taxman came in for some serious stick. But now HMRC’s newly-published ‘myth-buster’ has straightened out the situation once and for all…or has it?

I don’t remember much from my O level physics (sorry Mr Jones) but I do remember being told that ‘nature abhors a vacuum’. That principle came back to me when I was considering the latest developments in the government’s digital strategy.

You will recall that before Christmas, HMRC issued a document in which they stated that businesses will have to ‘update HMRC at least quarterly via their digital tax account’. No details were given about what this would actually mean, but in the absence of specific information, the vacuum was very quickly filled with speculation. Many people, not surprisingly, interpreted this as meaning that business would have to complete four tax returns each year. Business owners got up in arms, and a petition urging the government to abandon plans for quarterly returns attracted over 100,000 signatures. This triggered two things - a debate in parliament, and the publication by HMRC of a document with the extraordinary title ‘making tax digital: myth-buster’. The debate and the publication both make the same point: quarterly reporting does not mean quarterly tax returns. It means sending information to HMRC directly from accounting records which will be kept electronically. What that information is, and how it is to be sent to HMRC is still completely unknown.

There are important lessons here for the way in which HMRC communicates with taxpayers. In a world of instant electronic communication it is very easy to lose control of the agenda and set hares running, which is exactly what has happened here. HMRC should have been much more explicit upfront in the way that this change was explained so that the ‘myths’ didn’t develop in the first place.

I have some sympathy for HMRC because they want to take a collaborative approach to all of this, to roll things out gradually and to consult at all stages in the process. This must be right in principle, but it does run the real risk that a lack of detail leaves people in the dark and allows rumours to flourish.

In an environment where the internet allows ideas to go viral in a matter of minutes, the calm civilised timetable of HMRC consultations may not be realistic.

If you would like to discuss any of the points raised further, please contact Andrew Hubbard or your usual RSM contact.