Impact assessment

Making Tax Digital for VAT - screening equality impact assessment

Published 26 May 2022

Project objectives

Making Tax Digital (MTD) forms a crucial building block in the government’s 10-year strategy to make the tax system more resilient and effective, to boost business productivity, and support taxpayers.

Following formal consultation in 2016, the first phase of MTD for VAT was implemented from April 2019.

For VAT periods starting on or after 1 April 2019, VAT-registered businesses with a taxable turnover above the VAT registration threshold of £85,000 have been required to keep their records digitally and provide their VAT return information to HMRC through MTD-compatible software.

From April 2022, MTD requirements are extended to smaller VAT-registered businesses, with taxable turnover below the £85,000 VAT threshold.

MTD aims to tackle that part of the tax gap caused by error and failure to take reasonable care, by removing opportunities to make certain types of mistakes in preparing and submitting tax returns. Errors and mistakes in business records cost the Exchequer over £10 billion in 2019 to 2020 and the Office for Budget Responsibility have certified that since the first stage of mandation in 2019, MTD for VAT will raise an estimated £265 million in additional tax revenue by the end of the 2021 to 2022 tax year.

MTD does not change businesses’ tax liability or payment obligations, but does reduce scope for error. Reducing the scope for error can help contribute to a reduction in the tax gap, supporting public services and levelling the playing field for businesses. The projected gains to the Exchequer resulting from MTD reflect the reduced scope for error.

Businesses that move to real-time record keeping using accounting software may experience significant productivity benefits. There is growing evidence to support the link between using digital tools and productivity – for example, the Lloyds Bank UK Business Digital Index 2019 found that digital channels saved small businesses, on average, a day a week in administration. Less time spent on tax administration has scope to cut stress and allow businesses to focus on their most pressing business priorities, serving customers, innovating, growing and creating jobs.

Research has shown that for the majority of those using it, MTD is delivering at least one benefit in terms of time saved, ease of dealing with VAT obligations and identification of errors. Further research provides strong evidence that MTD is achieving its objective of reducing the tax gap by reducing the amount of error made when filing tax returns and delivering additional tax revenue.

Customer groups affected

The customer groups that will be impacted by the change are all VAT-registered businesses, which include:

• limited companies
• self-employed individuals
• large businesses

In addition, the changes will also affect HMRC’s stakeholders who provide services to our customers:

• tax agents
• IT/software developers

What customers will need to do

What customers need to do as a result of the change

Under MTD, businesses must keep digital records and use MTD-compatible third-party software to submit their tax returns to HMRC. Under the changes, those who do not already keep their records digitally will need to start doing so for their VAT obligations.

How customers will access this service

Customers needing to use MTD for VAT will do so through MTD-compatible third party software.

There is a mixture of bridging and VAT record keeping products. There are products available for agents and businesses and currently 6 are offered free.

When customers need to do this

VAT-Registered businesses with taxable turnover above the VAT threshold (£85,000) have needed to keep digital records and use MTD-compatible third-party software to submit their VAT returns to HMRC from their first VAT period starting on or after 1 April 2019.

Other VAT-Registered businesses are required to keep digital records and use MTD-compatible third-party software to submit their VAT returns to HMRC from their first VAT period starting on or after 1 April 2022.

Assessing the impact

MTD ran large scale public consultation exercises between August and November 2016, which considered those that ‘could not engage digitally’.

Since inception, we have engaged extensively with external stakeholders, including through:

• representative bodies for business (eg the Federation of Small Businesses)
• representative bodies for specific trade sectors – and particularly those who may find aspects of the digital agenda more challenging (eg NFU – National Farmers Union, CAFRE – The College of Agriculture, Food and Rural Enterprise)
• other Government Departments in the devolved administrations - Scottish Government, Welsh Government, Northern Ireland Executive (eg DAERA – The Department of Agriculture, Environment and Rural Affairs)
• representative bodies for the agent community (eg ICAEW – Institute of Chartered Accountants in England and Wales, Chartered Accountants Ireland)
• tax professional organisations (eg CIOT – Chartered Institute of Taxation)
• bodies such as the Low Incomes Tax Reform Group (LITRG) and the Good Things Foundation on digital engagement
• Parliamentary committees (eg the Treasury Select Committee and the House of Lords Economic Affairs Committee’s Finance Bill Sub-Committee)
• delivery partners in the software industry (eg the Business Application Software Developers Association)

We are collaborating with Tax Aid to understand the specific barriers to digital change experienced by more vulnerable customers – including those with protected characteristics

We assessed the equality impacts on all the protected characteristic groups in line with the Equality Act and Public Sector Equality Duty and section 75 of the Northern Ireland Act.

Racial groups

The population using MTD for VAT will be made up of diverse racial groups – there is no evidence to suggest any specific impacts on customers in this protected characteristic group. Extra support will be provided as required.

Disability

Impact on customers

There is evidence to suggest that there may be specific impacts on those customers within this protected characteristic group.

Within this protected characteristic group we have considered those customers who use screen readers to access digital content, and other accessibility tools.

We have also considered those customers within this protected characteristic group who are in lower socio-economic brackets and who may lack access to appropriate IT and personal mobile devices and equipment, and those customers with lower literacy and numeracy.

Proposed mitigation

To ensure the widest possible access to software that will meet MTD requirements, HMRC is working closely with software developers to make sure that there are several software products that cater for those with cognitive, motor, visual and hearing difficulties.

HMRC will not be producing MTD software or tools itself because it believes a one-size-fits-all approach is not enough considering the diverse needs of those who will be using MTD. We are confident that the software industry can provide a better range of MTD products that meet accessibility needs than HMRC ever could.

There has been a continual increase in the number of accessible MTD for VAT products.

To ensure the widest possible access to software that will meet MTD requirements, HMRC is continuing to work closely with software developers to make sure that there are several VAT software products that cater for those with cognitive, motor, visual and hearing difficulties.

There are filters on the Find software for MTD for VAT page to help customers easily identify these products:

• 22 support cognitive, motor, visual and hearing (needs)
• 27 support motor
• 26 support cognitive
• 24 support visual
• 25 support hearing

Where a customer’s disability prevents them from using the MTD services, they may be exempt from MTD requirements. Businesses that are already exempt from engaging with HMRC through other mandatory digital channels will continue to be exempt and will not have to meet the obligations of MTD. The exemptions under MTD mirror the VAT online filing exemption. MTD exemptions have operated successfully since the introduction of MTD for VAT businesses with taxable turnover in excess of the VAT threshold since April 2019.

These exemptions will continue to be available to businesses within the expanded scope of MTD. HMRC has ensured that clear guidance is provided and easily accessible for digitally excluded taxpayers about the exemption process. It has provided mechanisms for an exemption to MTD to be easily applied for through non-digital means.

Additional information

Digital content can be provided in a variety of formats, including hard copy, on request. Formats available include: Braille, Audio, Large Print. There is also a zoom facility to increase and reduce font sizes within online content. The Government Digital Service (GDS) assess and sign-off aspects of HMRC’s digital design to ensure that it meets accessibility requirements such as for the use of screen reader users.

All GOV.UK web content, including the Personal Tax Account (PTA), adheres to National and Internationals standards such as W3C’s WCAG 2.1. AA that services must achieve as part of meeting government accessibility requirements.

HMRC offers an ‘Extra Support Service’ (ESS) which can be accessed by those customers who cannot, for whatever reason, interact with HMRC digitally or who need additional support and reassurance.

Sex

There is no evidence to suggest any specific impacts on customers in this protected characteristic group.

Gender reassignment

There is no evidence to suggest any specific impacts on customers in this protected characteristic group.

Sexual orientation

There is no evidence to suggest any specific impacts on customers in this protected characteristic group.

Age

Impact on customers

There is evidence to suggest that there may be specific impacts on some customers within this protected characteristic group.

Although many older people use digital technology and are able to interact online, customer insight suggests potential differences in digital confidence and capability between customers in different age groups.

Those customers with occupational or state pension were found to have an average age of 76 and significantly less digital capability than other age groups. This customer group was more likely than other age groups to contact HMRC by telephone.

Alternatively, there is some evidence to show that older customers with limited digital capability were relying more on agents to help them meet their VAT obligations.

Proposed mitigation

HMRC offers an ESS, which can be accessed by those customers who cannot, for whatever reason, interact with HMRC digitally or who need additional support and reassurance.

Where a customer’s age prevents them from using the MTD Services, they may be exempt from the MTD requirements.

Businesses that are already exempt from engaging with HMRC through other mandatory digital channels will continue to be exempt and will not have to meet the obligations of MTD. The exemptions under MTD mirror the VAT online filing exemption. MTD exemptions have operated successfully since the introduction of MTD for VAT businesses with taxable turnover in excess of the VAT threshold since April 2019.

These exemptions will continue to be available to businesses within the expanded scope of MTD. HMRC has ensured that clear guidance is provided and easily accessible for digitally excluded taxpayers about the exemption process. It has provided mechanisms for an exemption to MTD to be easily applied for through non-digital means.

Religion or belief

Impact on customers

There is evidence to suggest specific impacts on some customers within this protected characteristic group.

The intrinsic values of some religions, such as Judaism (Sabbath) and Islam (Ramadan) can potentially limit the times of day or week when customers in this group can interact with HMRC Services.

Some religious groups, such as the Plymouth Brethren, follow rules related to computer use that may affect access to digital services.

Proposed mitigation

Individuals in this group who are using MTD will be able to access tax information and services when it is convenient for them, through 24/7 digital provision. This will allow individuals to utilise their MTD Services outside of traditional business hours to suit their needs.

HMRC understands the impact that MTD may have on this group and therefore exemption is possible where a customer’s religious affiliation genuinely prevents them from using the MTD Services.

Businesses that are already exempt from engaging with HMRC through other mandatory digital channels will continue to be exempt and will not have to meet the obligations of MTD. The exemptions under MTD mirror the VAT online filing exemption. MTD exemptions have operated successfully since the introduction of MTD for VAT businesses with taxable turnover in excess of the VAT threshold since April 2019.

These exemptions will continue to be available to businesses within the expanded scope of MTD. HMRC has ensured that clear guidance is provided and easily accessible for digitally excluded taxpayers about the exemption process. It has provided mechanisms for an exemption to MTD to be easily applied for through non-digital means.

Carers

Impact on customers

There is evidence to suggest that there may be indirect impacts on those customers within this protected characteristic group.

Although not specifically impacted as a customer group, methods of secure digital access are required for those who work on behalf of others in their care.

Proposed mitigation

HMRC offers a ‘Trusted Helper’ Service to anyone who accesses the MTD services. Customers can appoint an agent using form 64-8 and access services for others under power of attorney. 

Digital provision will offer choice to individuals in this group to self-service outside of traditional business hours to suit their needs. 

Additional Information

Through both software and their Business Tax Accounts, customers (businesses and landlords) and their agents will be able to access tax information and services when it is convenient for them, through 24/7 digital provision.

Customers without a business tax account but interacting with HMRC through their personal tax account will also be able to access tax information and services when it is convenient to them through a 24/7 digital provision.

Pregnancy and maternity

There is no evidence to suggest any specific impacts on customers in this protected characteristic group.

Marriage and civil partnership

There is no evidence to suggest any specific impacts on customers in this protected characteristic group.

Political opinion (for Northern Ireland only)

There is no evidence to suggest any specific impacts on customers in this protected characteristic group.

People who use different languages (Including Welsh Language and British Sign Language)

There is evidence to suggest specific impacts on those customers within this protected characteristic group.  Some VAT registered businesses are based outside the UK (overseas businesses that wish to operate using Amazon and Ebay for example must have a VAT registration in order to use these platforms). There is anecdotal evidence that English may be a second language for many of these overseas customers.  

Proposed mitigation

HMRC provides a variety of translation and language services which are available to both our people and our customers including use of ‘the big word’ language service and the Welsh Language Unit.

HMRC is working with Groups such as Royal Association for Deaf people (RAD) to co-develop support material for people who do not use English as a first language (eg British Sign Language) to explain how to communicate with HMRC using digital services.

On the Find software for MTD for VAT page there are 25 products supporting Hearing needs and currently 2 MTD for VAT software products that support the Welsh language.

There are filters on the Find software for MTD for VAT page to help customers easily identify these products.

Opportunities to promote equalities

We have considered opportunities to promote equalities and good relations between people in each of the protected characteristic groups and those outside of that group. None have been identified within the scope of this project.

A full equality impact assessment is not recommended.