From Skyping our relatives in New Zealand to liking our friends’ Facebook posts; from watching box sets on Netflix to researching and booking our next holiday; from banking apps to humble email, many of us live our lives “digital by default”. But what about those clients of yours that don’t, or can’t? How will the “digitally excluded” cope with MTD?
Making Tax Digital is part of a wider trend to take as many government services online as possible. The Government Digital Strategy clearly explained the driving factors behind the decision: a desire to deliver better services at a lower cost:
“For some government services, the average cost of a digital transaction is almost 20 times lower than the cost of a telephone transaction, about 30 times lower than the cost of postal transaction and about 50 times lower than a face-to-face transaction.”1
These savings add up. According to the Digital Efficiency Report the government could save between £1.7 and £1.8 billion each year by going digital by default.2 But the efficiency gains will not just be for government departments to enjoy; there are also expected to be “significant commercial and efficiency benefits for SMEs”3
Nevertheless, the government also accepts that there are some people who either cannot or will not transact online. A government report written as recently as 2014 estimated that between 3.5 and 4 million people “may never have basic digital capabilities.”4
This report identified a number of reasons for digital exclusion, including:
- Illiteracy – Affecting about 2.6 million adults
- Access – The ability to actually get online
- Skills – The ability to use the internet and the services on it
- Motivation – Understanding why online access is a good thing
- Trust – Concerns about online fraud and crime
While MTD might increase the pressure on your clients to get online (motivation) and while perhaps only a very small number will be illiterate, that still leaves concerns – acknowledged by the government – around access, skills and trust.
A number of respondents to the HMRC’s 2016 Making Tax Digital for Business (MTDfB) consultations highlighted the practical difficulties that people face accessing digital services. HMRC is still considering the position of smaller businesses but has already decided that charities (though not trading subsidiaries of charities) and “the digitally excluded” will be exempt. In their published response, HMRC say:
“The government will legislate for an exemption to MTDfB for taxpayers who cannot engage digitally. This exemption will be based on the existing VAT online filing exemption and will therefore exempt the following groups from the MTDfB requirements, where HMRC is satisfied that they qualify:
- a person who is a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications; and
- persons for whom MTDfB is not reasonably practicable for reasons of disability, age, remoteness of location, or any other reason.”5
It remains to be seen how these guidelines (for example, age) will be applied, and what “any other reason” might include in practice.
On the face of it, the exemptions outlined above apply only to individuals and not (at least not yet) to small businesses, although they may experience similar problems.
One very interesting finding of the government’s own research is the gulf that exists between micro businesses and the self-employed.6
Among micro businesses, just 2% were found to be digitally excluded, while a further 29% were categorised as “assisted digital” (that is, were expected to need some assistance to interact with the government online). Among the self-employed, the numbers rose sharply to 19% and 42%, respectively. (According to this study, across all taxpayers the figures are 10% and 29%).
The extent of digital disenfranchisement among the self-employed must be a concern to HMRC and it will be interesting to see how they tackle it.
Preparing for MTD
Even if individuals and businesses qualify as exempt from the electronic bookkeeping and filing elements of MTD, their advisers will no doubt want to submit electronic records. Transcribing information from hard-copies is time consuming and error prone, so you may like to consider whether there is anything you can do to prepare your digitally excluded and digitally challenged clients for MTD.
- Can you identify those clients who are likely to struggle with an online solution?
- Start with a list of anyone who hasn’t given you an email address. Can any of these gaps be filled?
- Ask staff for the names of clients who have struggled with, or simply refused to try, online interaction in the past.
- How many of the above would HMRC exempt from MTD?
- Can anything be done to encourage your digitally challenged clients to get online?
- If online isn’t an option, what about the simplest computerisation, such as a word processed document or spreadsheet?
- Still too complex? Then think about the simplest and most reliable way of collecting this information non-digitally. Could you devise a hard-copy form showing all of last year’s income sources with space for your clients to write in the current values and add any missing sources? Remember, under MTD reporting will be quarterly, so this is no longer a once-a-year challenge.
We’ll keep you updated as HMRC release more information on its policy regarding digital exclusion.
- See Government Digital Strategy, November 2012
- See Digital Efficiency Report, November 2012
- See Government Digital Inclusion Strategy, December 2014
- This represents between 6.8% and 7.9% of the adult population. See Government Digital Inclusion Strategy, December 2014
- See Making Tax Digital: Bringing business tax into the digital age - summary of responses, August 2016
- Micro businesses were defined as having between one and four employees; self-employed have no employees. See Digital exclusion and assisted digital research, September 2015