I’ve recently been travelling around the country presenting about Making Tax Digital. The idea for this article came from the numerous accountants who shared their concerns about how MTD for VAT will affect their clients who, for various reasons, are unable to use the internet. Such people are often described as ‘digitally excluded’.
Such clients are not rare; HMRC’s reports that 15% of the UK’s general population are digitally excluded. It is also estimated that 19% of self-employed individuals (without any employees) are digitally excluded.
When HMRC first mandated online filing for VAT returns in 2010, I remember having a debate with a family friend. I felt that mandatory electronic filing was discriminatory to those who felt they were too elderly to use computers. Yes, I know there are many elderly people who can use computers, but I was thinking about specific people who I had worked with previously; they were quite able to run their businesses, but they had no desire to buy a computer and learn how to use it. My friend (who you’d describe as ‘techie’; he always has the latest gadgets), said that in the digital age, nobody has an excuse not to use computers, especially those who are able to run a business.
As it turned out, HMRC seemed to feel the same way as my friend. I felt quite vindicated in 2013 when the first tier tribunal, LH Bishop Electric Co Ltd and others (TC2910), found that three appellants had the right not to file their VAT returns online.
Two of the appellants had disabilities that meant they were unable to use computers. One lived in a location that had poor access to broadband. All three appellants were considered to be of an age at which learning to use a computer would be more difficult and time consuming. Requiring them to file returns online was found to contravene the European Convention on Human Rights.
As a result of the case, if HMRC agree that a taxpayer is ‘digitally excluded’, concessions are made.
HMRC’s concession for the digitally excluded
If HMRC are satisfied that a person is either:
- A practising member of a religious society or order whose beliefs are incompatible with using electronic communications; or
- Unable to use an electronic return system due to a disability, their age, remoteness of location or any other reason,
the person may provide their VAT return figures to HMRC over the phone or on paper.
Although this concession has been in existence since 2014, it is not widely known. Very little is published on gov.uk about being digitally excluded. It’s almost as though HMRC want it to be kept secret.
In search of more information, I called HMRC’s VAT helpline. After listening to acid-jazz music for seven minutes an adviser told me the following:
- If a taxpayer feels as though they qualify as digitally excluded they should call the VAT helpline on 0300 200 3700.
- They need to do this themselves; if an agent calls on the client’s behalf then HMRC will say that the agent could be filing their VAT returns online for them!
- HMRC do not give out details of the specific criteria that need to be met in order for HMRC to be satisfied that the person is digitally excluded.
It is understood that HMRC are currently quite lenient when satisfying themselves that a person is digitally excluded, but I’ve started to wonder whether the introduction of MTD will change this.
Making Tax Digital for VAT – exemptions
The MTD for VAT regulations mandate digital record keeping and were laid before parliament on 28 February 2018. Broadly speaking, compliance with the regulations will be mandated for compulsorily-registered traders from 1 April 2019. Thankfully, the regulations include similar exemptions for those unable to make electronic returns due to religious reasons or because of age, disability, remoteness of location or any other reason.
Many traders who currently are unable to use computers don’t go down the digitally-excluded route; they simply fulfil their VAT obligations by getting their accountant to file their VAT returns for them. I think most firms have such clients – those who don’t use email and prefer to communicate over the phone or in person. It looks as though MTD for VAT will make such agent/client relationships more challenging.
Under the MTD regime, even if the taxpayer uses an agent, there will be specific tasks that the taxpayer needs to carry out themselves – and these tasks require using IT. The tasks include receiving emails from HMRC, actioning agent authorisation requests and possibly other actions that require the taxpayer to log into their own business tax account.
I can think of two workarounds for this challenge:
- The agent sits with the client and helps them with online tasks. At this point, we do not know how many online tasks the taxpayer will have to complete himself, so it might be worth considering my other workaround:
- The client satisfies HMRC that he is digitally excluded and is therefore exempt from MTD for VAT. We are uncertain as to whether HMRC will allow an agent to file VAT returns using VAT Online Services (the current system) for a client who is digitally excluded – the agent (or even the client himself) may need to give HMRC the VAT return figures over the phone.
My concern is that there will be an increase in the number of taxpayers requesting that HMRC agree they are digitally excluded. Will this increase make HMRC less inclined to agree?
Hopefully this issue will be addressed in the MTD for VAT notice, which should be published imminently, but at the moment, questions remain unanswered and HMRC seem reluctant to publicise the concession.
In their recent Agent Talking Points webinar about MTD, a delegate asked HMRC about clients without a computer or email address; what should they do? HMRC’s response was to read the ‘extensive suite of support’ on gov.uk, and to watch HMRC’s webinar.
The delegate prompted the replier to read the question again – their client doesn’t have a computer and cannot access anything digitally. HMRC’s response? They don’t need a computer – they can use a smartphone instead!
It is not clear whether the replier was aware of the LH Bishop Electric case, but it is clear that we need more information from HMRC about how our digitally excluded clients will be affected by MTD so we can continue to support them. They represent 15% of the population after all.
Digital exclusion is just one of many issues covered in our course ‘Making Tax Digital: Preparing for 2019’.