April 1 saw the introduction of Making Digital Tax (MTD), a program to upgrade manual tax return processes for UK businesses with more modern processes. In the first case, the scheme only applies to UK companies whose annual taxable turnover exceeds €85,000. However, subsequent iterations will force more companies to submit their VAT returns to an HMRC portal where the information will be stored. However, while it was designed to make the system easier and more efficient for taxpayers, not all business owners have welcomed the arrival of MTD. Some, for example, see it as a nuisance, needlessly interrupting a process that has worked well for years. Others, especially small businesses, worry about the cost of the MTD-compliant software they need to use the service. Such criticisms are obviously not unique to MTD. Objections will be raised in response to any procedural changes. But it should be seen as part of a bigger picture. Rather than digitize just one aspect of the UK tax system, MTD can be seen as the first step in a systemic review, opening the door to a future of innovation.
Nothing new
If you look at what other countries are doing with regard to their VAT and tax regimes over the last 15 years, MTD doesn't bring anything new to the table. Latin American countries have pioneered the area of proactive digitized VAT recovery in 2003, for example, as part of an effort to fill huge gaps in VAT recovery. Mandatory requirements for electronic invoicing and real-time reporting required invoices to be uploaded to a government platform for approval before finalization. Making a significant difference to the health and cash reserves of tax authorities in the region, the success of this initiative has not gone unnoticed in Europe. Spain introduced real-time transaction reporting in 2017, followed a year later by Hungary. In January this year, Italy introduced mandatory electronic invoicing for transactions between national companies, having previously used a business-to-government portal. And as of this writing, Russia, Greece, France and many other tax authorities around the world are introducing new and innovative changes to their respective tax systems. However, regardless of the exact nature of their changes, these countries share a software-based VAT structure. France, for example, has implemented a similar system for over 10 years, during which time its tax system has continued to evolve for the better. It is within this community that we must consider BAT. Rather than being an expensive nuisance, it might be more useful to look at the introduction of BAT in the UK as an important foundation on which future innovations can be built.
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