We question why such a monumental change is required at all for building societies when HMT/ HMRC designed the personal savings allowance to take out 95% of taxpayers of savings tax irrespective of future interest rate changes.  It seems unfair, illogical and wholly disproportionate to burden the taxpayer with these costs – which will be considerable – for 5% of the tax paying population.   And the cost for our sector?  Around £25 million.  It is disappointing to note that the “making tax digital” proposals are not linked to the automatic exchange of information changes.  This means providers are faced with the burden of implementing two separate HMRC systems just for notification of taxpayers’ interest.  That is a disjointed and short-sighted decision on HMRC’s part.

Setting implementation dates before even draft rules and specifications have been issued is unhelpful and dangerous.   Lessons should have been learned with FATCA, and to a lesser extent CRS, implementation; the process was far more burdensome and expensive for building societies than was necessary due to the constant changes of the schema.   Any major changes to reporting should come with a two-year implementation period after rules and technical specifications are published.

Nonetheless, we support the concept of a modern tax system using digital technology which is designed to make it easier for individuals and businesses to comply with their tax obligations.   But no case has been made yet for “real-time” information on interest paid – much of it annual - by building societies or banks.   

HMRC admits: “There is still a lot to design and develop before 2020.”  Judging by the gaps in the consultation paper this is quite an understatement.  These proposals represent the biggest change in tax administration since perhaps the introduction of self-assessment yet the lack of detail and inadequate three-month comment period for six separate consultations prevents us from providing meaningful feedback.  Equally worrisome is the time between the deadline and the publication of draft legislation for the Finance Bill 2017.  It is too short to allow the time needed for full and detailed consideration of the feedback.   It follows that we consider the implementation timetable to be overly-ambitious.  And SET as a secure transmission service is due to be replaced shortly yet there are no detailed plans for third party information providers to study. 

It therefore comes as no surprise that the very earliest we consider building societies should start to implement elements of the making tax digital proposals is April 2020 (and maybe even later if the rules and specifications are not available at least two years in advance).  Other HMRC initiatives such as lifetime ISAs will require significant system changes (as well as extensive customer communications).  “Deceased” ISAs are still set to come on stream in April 2017.  And HMRC is not the only regulator: the Prudential Regulation Authority’s proposed changed for financial reporting will consume significant amount of resources.  Larger societies are already facing reporting challenges brought about by the introduction of IFRS 9 on 1 January 2018. 

Our answers to the consultation questions below relate to building societies who will be required to perform even more of HMRC’s data collection.  But we also are concerned about their customers – the individuals and small businesses – some of whom will not wish, or even be able to, embrace a digital approach.  For them there should always be a manual, paper-based alternative.  HMRC believes the majority of taxpayers will have made the transition to digital accounts by 2020.  We are not sure on what basis this assertion has been made but consider it to be unfounded.    No supporting evidence has been produced; indeed government data contradict it.  

Click here to read the full response.