HMRC’s implementation delay of the beleaguered Making Tax Digital (MTD) project presents an opportunity for businesses to take a longer, deeper look at how to reduce the tax burden on their businesses.
With more time now available, wider discussions have begun around firstly simplifying the tax regime before consideration of digitalising it.
The Government has a wealth of research and sources to draw upon, including from the Office of Tax Simplification (OTS), business organisations and professional advisers.
The issues that face the government in the main stem from the 2008 global financial crisis, with a fall in corporate taxable profits and a visible shift towards self-employment as innovation thrives. This has been exacerbated with low wage inflation and the year on year rise in personal allowances since 2010/11, also reducing the income tax base. For businesses, it has not been an easy time either the past few years, with businesses everywhere having to wrestle with pensions auto-enrolment and real time information for PAYE, and now the Making Tax Digital initiative looming on the horizon.
The Institute of Fiscal Studies (IFS) told MPs on the Treasury Select committee quite clearly that ‘Taxation is more complicated than it needs to be [in the UK]’ – and few businesses would argue with this assertion.
The IFS explains that the problems arise when tax policy makers attempt to draw distinctions between different activities by offering preferential tax treatment for certain products, assets or income sources. And the complication arises when each of these targeted measures demands clear and detailed definitions as to what qualifies for support and what doesn’t – a simple, but deadly recipe for unnecessary complication.
The Office of Tax Simplificiation, a child of the Tory/Lib Dem coalition, did go some way to addressing the complexity, but according to the IFS, only ’round the edges’. The slow progress is believed to be down to a lack of focus on the existing tax system outwith the usual headline-grabbing Budget periods.
There is lots of support in the UK for start-ups but this support falls short when businesses want to scale up their operations, and this is where the complexity of the UK tax system starts to have an effect. With a complex tax system, there are larger demands on businesses to overcome new administrative hurdles whilst they often lack the resources or the know how to work the tax system in their favour.
Many businesses and individual tax payers will be wondering how far MPs in the current government will go to help them, with Brexit negotiations now grabbing their attention for the forseeable future, and the implementation of a simplified tax system unlikely to happen anytime soon.
For more information on Making Tax Digital and how we can help you navigate through through the complex tax regime as your business grows, please contact us for a free consultation.