MPs issue recommendations on Making Tax Digital

The Public Accounts Committee's (PAC) report on ‘Progress in Making Tax Digital’ reveals grave concerns over the project’s spiralling costs, design flaws and missed deadlines. It has issued five recommendations for HMRC to follow.

The PAC, a House of Commons committee of MPs, has been tracking and taking evidence on the progress of Making Tax Digital for Income Tax. The extent of its concerns is noted by the headline given to its online summary: 'Making Tax Difficult: HMRC losing sight of customer in tax changes'.

The PAC notes that Making Tax Digital (MTD) should make it easier for taxpayers to get their tax right and it is concerned that HMRC have lost sight of the need to put customers at the heart of their changes by not solving the fundamental design issues. It finds that the project has a history of poor delivery, over-optimism in timetables and spiralling unforeseen costs:

• Although HMRC launched Making Tax Digital for VAT on time for larger businesses, they needed three years longer to introduce the programme for smaller businesses.
• The changes for Income Tax Self Assessment are on a larger scale and level of complexity to VAT. HMRC completely underestimated the scale of the challenge of digitalising the tax system and its poor delivery of the programme has resulted in repeated delays and spiralling costs.
• The programme is now running at least eight years late for self-assessment, with the government’s most recent announcement in December 2022 pushing it back to 2026 for the first customers affected.
• Seven years in and with £640 million of taxpayer’s money spent, the PAC is concerned that the final bill for the programme could end up much higher than HMRC’s latest forecast of £1.3 billion.
• In 2023 HMRC started to work more collaboratively with stakeholders on how Making Tax Digital will work in practice. However, with some significant design issues still to be resolved and less than three years before HMRC begin introducing the programme for self-employed people, the PAC is sceptical that its new timetable is achievable.

The PAC says that HMRC must ensure their plans are realistic and specify and commit to a budget and timetable and hold senior leaders accountable for delivery.

Conclusions and recommendations

Conclusion

1. Widespread and repeated failures in HMRC’s planning, design and delivery of Making Tax Digital have led to increased costs and several delays to the Making Tax Digital programme.

Recommendation

1. (a) HMRC should urgently test that their existing plans are sufficiently detailed and rigorous to ensure the successful delivery of the remainder of the programme and report to the Committee on its findings for Making Tax Digital for Self Assessment as part of its Treasury Minute.
2. (b) HMRC should, as part of their Treasury Minute response, specify in detail how they will hold senior leaders accountable for delivering against the programme’s timetable and budget, and what consequence there will be for any further timetable and budget overruns.

Conclusion

2. It is unacceptable that seven years in, with £640 million of taxpayer’s money spent on the programme as a whole, so many questions remain about how Making Tax Digital for Self Assessment will work.

Recommendation

1. (a) HMRC should, in partnership with their programme stakeholders including customers, tax agents and software providers, resolve design issues and write to the Committee by April 2024 to explain how each of the significant outstanding design issues have been resolved. As part of this, HMRC should consider what steps they can take to simplify arrangements for Self Assessment taxpayers.
2. (b) HMRC should, by Summer 2024, undertake and publish a robust assessment of how much difference to tax revenue is made by (i) more frequent submissions of Self Assessment data and (ii) by digital submissions.

Conclusion

3. HMRC’s design of Making Tax Digital has not taken sufficient account of the realities facing business taxpayers and agents.

Recommendation

1. (a) In addition to Making Tax Digital, HMRC should research what services customers would find most helpful, drawing on customer views as well as international research and publish its findings by Autumn 2024.
2. (b) HMRC should ensure that all its future proposals for digitalising the tax system:

• Start with what taxpayers need.
• Are demonstrably better for them than existing arrangements.
• The plans are supported and therefore can be championed by taxpayer representatives, including its own Administrative Burdens Advisory Board.

Conclusion

4. In seeking further investment in the programme, HMRC have not been open enough about the substantial costs that Making Tax Digital will impose on many taxpayers.

Recommendation

4. Before finalising its proposals to extend Making Tax Digital to lower-income taxpayers, HMRC should:

• Fully reassess the costs for customers to comply with Making Tax Digital for Self Assessment, taking into account inflation and any significant design changes made when finalising its plans.
• Use this to prepare a robust updated business case for Making Tax Digital for Self Assessment.

Conclusion

5. HMRC’s poor track record of repeated delays to the Making Tax Digital programme and its lack of conviction in its latest timetable gives us little confidence that it will deliver the rest of the programme on time.

Recommendation

5. (a) HMRC should, as part of its Treasury Minute response, explain how they will assure themselves that the timetable and budget for Making Tax Digital for Self Assessment is realistic and how it will use independent technical assurance and other sources of evidence to provide this assurance.
6. (b) If further changes to the delivery timetable are necessary, HMRC should communicate this clearly, early and definitively, to provide certainty to its delivery partners and customers.

Conclusion

6. We are concerned that the repeated delays and poor design of the Self Assessment phase of the programme is deterring software providers from developing quality products and will ultimately put customers at risk.

Recommendation

6. (a) HMRC should, within three months, write to the Committee and set out how they will ensure that they strike the right balance between ensuring competition, quality and access to software for its Making Tax Digital VAT and Self Assessment customers.
7. (b) HMRC should, within three months, write to the Committee explaining what assurance customers can take from its accreditation of software and how it will protect taxpayers if the software (rather than the taxpayer) makes mistakes in tax submissions or does not safeguard taxpayer data sufficiently.

Useful guides on this topic

Making Tax Digital zone
When does Making Tax Digital (MTD) apply? What does Making Tax Digital really mean? How will it affect you? Does MTD mean quarterly reporting? Is my business exempted from Making Tax Digital?

External links

Public Accounts Committee news: Making Tax Difficult: HMRC losing sight of customer in tax changes, PAC report warns