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Screenshot of HMRC CEO Jim Harra appearing at the Public Accounts Committee hearing
Public Accounts Committee

Harra: HMRC ‘underestimated’ MTD complexity

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HMRC chief executive Jim Harra admitted to a committee of MPs that the government had underestimated the scale and complexity of the government’s Making Tax Digital scheme, leading to multiple delays and a budget overrun of more than £1bn.

21st Jun 2023
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In a follow-up to the National Audit Office’s excoriating Progress with Making Tax Digital (MTD) report, which levelled multiple criticisms at those responsible for the government’s flagship tax transformation programme, the Public Accounts Committee called three senior HMRC officials into Parliament to answer questions on issues raised in the report.

When asked to account for the four delays to MTD for income tax self assessment (MTD ITSA), which had led to the programme coming in at an estimated £1bn over budget, HMRC chief executive Jim Harra admitted to the committee it had “underestimated the overall scale and complexity of the challenge for us [HMRC], the taxpayer and their agents in making the transition”.

Harra was keen to emphasise that events such as Brexit and the Covid-19 pandemic had hampered the department’s efforts to deliver the MTD initiative. However, he admitted that even if the events hadn’t occurred, it was unlikely the programme would have landed on schedule due to a variety of outdated back-end systems at HMRC.

“We announced MTD without perhaps doing all of the necessary work to identify the complexity in migrating data from our old systems and the quality of that data meant that it was not a simple matter of migrating it, which ultimately distracted us away from our next phase of MTD,” said Harra.

Real-time information ambition

As part of the latest delay to MTD mandation, the Treasury also introduced a phased approach to its introduction: those with incomes above £50,000 will join the programme in 2026, while those whose incomes are in the £30,000 to £50,000 bracket (or ‘MTD cohort 2’, in HMRC-speak) will join in 2027.  

The Treasury is currently reviewing whether Making Tax Digital quarterly reporting is appropriate for people with income between £10,000 and £30,000 (‘cohort 3’), and Harra confirmed that a decision is expected to be made on this in the coming months.

Jonathan Athow, HMRC’s director general of customer strategy and tax design, told the committee they were also in the process of examining any steps that could be removed from the process that some taxpayers may find disproportionate. This includes considering whether the End of Period Statement – the document that allows taxpayers to finalise their business income for a basis period – is appropriate in all circumstances. 

He also confirmed there were no plans to remove the quarterly reporting element of the programme, instead doubling down on HMRC’s ultimate ambition to have real-time information that would update HMRC’s systems in the background.

“Part of the reason for the current tax gap is it can be up to 21 months between a transaction occurring and you needing to report that to HMRC as part of your self assessment return,” added Harra. “What we want ideally is real-time, at least quarterly record keeping. If you keep records up to date you’re less likely to make mistakes or forget things.”

Referring to his belief that the MTD programme will reduce the tax gap by cutting down errors and under-reporting (and raising an additional £3.9bn for the Exchequer by 2033-34), Harra stated the plan will lift the compliance levels of the whole taxpaying public, not just targeted individuals.

When questioned by MP Peter Grant about why HMRC had not simply used the original MTD budget to hire more staff to close the tax gap through investigations, Harra replied that investigations can be “tough, disruptive and intrusive” and it was “better to get things right at the start” of the tax process. 

Contingency plans and design issues

Under questioning from the committee, the HMRC officials were bullish about the prospect of delivering to their new timelines. 

When asked by committee chair and MP Meg Hillier if it had a contingency plan for MTD should further issues arise with data migration or outdated systems, HMRC director general of transformation Jo Rowland answered a slightly different question. She stated that the tax authority had actually given itself a target of operating an unrestricted public pilot by 2025, allowing those in the £30,000 to £50,000 income bracket to join the scheme before their current mandation in 2027.

Harra added that with MTD for VAT, many taxpayers had joined the pilot scheme on a voluntary basis early and been satisfied with the results the programme had delivered. 

To resolve the multiple design issues that have dogged MTD’s progress over the past eight years, including the inability for multiple agents to access the same data, and how to manage the process for taxpayers who jointly own a property, Rowland stated it is now working more closely with stakeholders “as part of a strategic oversight board with the ambition of resolving the most pressing design issues with coming months”

Despite questioning from Meg Hillier, HMRC would not confirm the exact make-up of the board, apart from confirming it contains internal representatives from HMRC, Treasury officials and previously featured former OTS chair Bill Dodwell.

‘Mending fences’ with the software industry

The HMRC officials also acknowledged that the decision to delay the introduction of MTD ITSA and reduce the number of taxpayers in scope for the project had made things ‘challenging’ for the accounting software industry. 

Jim Harra acknowledged the need to “mend fences and make progress” with vendors, as they “will be critical to decision-making and making sure there is a healthy range of products.”

AccountingWEB is aware of a number of smaller operators in the MTD ITSA waiting on the decision about whether to include those in the £10,000 to £30,000 income bracket in the scheme before making a decision on whether to pull the plug on their products.

Jo Rowland promised that HMRC would be “more transparent” with software developers regarding the wider road map for MTD. 

She also stated that vendors are expected to play a significant role in communicating the MTD changes to the wider public when the time is right – which is likely to be when the unrestricted pilot is available.

Rowland said HMRC was working with the software industry on a “warming-up campaign” similar to that conducted with MTD  for VAT, and there is a lot of ‘co-development’ to be done with the software industry when it comes to communicating the changes.

“There’s strength in joint marketing,” said Rowland. “The government leading with policy and then followed by software marketing."

Richard Wild from the CIOT and Andrew Burman from global tech firm Ryan join No Accounting for Tech this week to discuss the NAO's exploisive report on MTD and examine what can be done to get it back on the rails.

Replies (105)

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By Justin Bryant
21st Jun 2023 11:26

The bloke's clueless. He would not be tolerated in the private sector (where there is not limitless money to waste on such worse than useless vanity projects).

That said, he's got enough ability to pull the wool over the eyes of the PAC, which isn't saying much.

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Replying to Justin Bryant:
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By raju m
22nd Jun 2023 09:48

He seems like a very clever politician!!!!!!!!!!!!!!!!!!

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Replying to raju m:
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By Justin Bryant
22nd Jun 2023 10:00

Not that clever. Like the BoE, he makes the basic mistake of believing his own propaganda.

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Replying to Justin Bryant:
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By SpaceInvader
22nd Jun 2023 12:18

I'm not defending him but some of the morons that make IT decisions in FTSE100 companies could keep up with him in the "I didn't know that" stakes

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Replying to Justin Bryant:
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By swimmer
02nd Jul 2023 21:06

https://www.change.org/p/scrap-quarterly-reporting-mtd

Sign up to the petition to scrap quarterly reporting by clicking on the above link

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By AdamJones82
21st Jun 2023 11:33

“At least quarterly reporting” - I’m reminded of a Blackadder line “the eyes are open, the mouth moves, but Mr Brain has long since departed”

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Replying to AdamJones82:
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By Hugo Fair
22nd Jun 2023 22:53

To underestimate once is unfortunate,
To do so twice suggests incompetence;
To continue repeating it reeks of addiction to failure.

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By AdamJones82
21st Jun 2023 11:46

Imagine how efficient the current systems could have been had this money been spent on improving them instead.

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By Open all hours
21st Jun 2023 12:22

Dear Mr Harra,

Thank you for your contribution over almost four years as Chief Executive of HMRC and thank you also for attending the Public Accounts Committee (PAC) this week.
It became apparent at the PAC that you are way out of your depth and in order to restore confidence in HMRC I respectfully ask you to resign with immediate effect.
Those who led you to believe in the Emperors new clothing of MTD should also consider their positions.
I wish you well and trust that you will find a position more suited to your currently hidden talents.

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Replying to Open all hours:
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By leekris
25th Jun 2023 10:23

More likely this will end "I wish you well in your new position as a peer of the realm".

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By Hugo Fair
21st Jun 2023 12:34

I could spend the next month (full-time) forensically pulling apart the mis-directions, half-truths and evasions in Harra's performance ... which is what it was (no semblance of factual contributions just the kind of scripted performance that you get at am-dram shows around the country).

But to say he "admitted to a committee of MPs that the government had underestimated the scale and complexity of the government’s Making Tax Digital scheme" is to play his game.
The 'underestimating' was entirely within HMRC (who were not when I last looked the govt)!

And, despite various asides, he refused to admit that this 'underestimation' was more than a minor lack of foresight (and wouldn't even confirm that the mistakes wouldn't be repeated).

The word 'underestimation' is being used to hide some well-known but far more basic omissions which is heinous in both it's duplicity and stupidity:
* a comprehensive lack of knowledge or even awareness of their 'legacy' systems (which to be clear means those in live use, not a reference to historical systems in a museum);
* a focus entirely on the use of 'agile' development of front-end apps that, again, take no account of the demands of or subsequent processing by their 'back-end' systems;
* absolutely zilch in the way of understanding (or even researching) their envisaged 'users' (agents and taxpayers) and so an absence of 'user requirements' or even a range of practical scenarios;
* a closed shop (and mind) mentality when it comes to listening to (aka ignoring) feedback or even mere questions, and a pre-set decision to react as if everything is a criticism rather than suggestion;
* and on and on (basically ignoring/breaking every 'rule' of best practice - whilst apparently believing their own PR that all previous projects have been unblemished, rip-roaring successes).

Everything they've done (and are blithely continuing to do) is fine IF you're developing a simple app that is not mission-critical and doesn't form part of a much larger structure (say ordering a coffee at your local establishment) ... BUT it omits just about *every* element of controlling a system (not just software) development project.
They don't even appear to have battened down their own primary objectives ... and have no openly published metrics for how to measure degrees of success or failure *during* development.

I wouldn't tolerate this slapdash & incompetent approach if it was applied to putting-up a new garden shed (where at least it's an option to throw away and start over).

It's not just the waste of money (and our time) plus the smugness of those 'in charge' (who appear to be celebrating on their own down at the brewery) ... it's the lack of awareness that each step of non-progress is another step towards the ultimate collapse of our tax-gathering systems (a very real risk). Horizon floundered on the fallacy of sunk-costs, and HMRC aren't listening!

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Replying to Hugo Fair:
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By Justin Bryant
21st Jun 2023 12:38

"I wouldn't tolerate this slapdash & incompetent approach if it was applied to putting-up a new garden shed"

Indeed. Shedloads of money would be wasted there too.

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Replying to Hugo Fair:
By Mike18
22nd Jun 2023 10:35

"Everything they've done (and are blithely continuing to do) is fine IF you're developing a simple app"

Yes, but you would hope the app was needed or an improvement on what we had before.

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Replying to Hugo Fair:
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By rbw
26th Jun 2023 13:26

I'd like to know what the non-executive directors have said to the Board about MTD.

PS
I think you may have blown your chances of an invititation to serve as one :)

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Chris M
By mr. mischief
21st Jun 2023 12:35

Our bin drivers are on strike, Mr. Harra. So we have some suitable vacancies here!

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Stepurhan
By stepurhan
21st Jun 2023 12:53

There is a need for mending fences with the software industry as they will be critical to decision making.

No other groups critical to decision-making it would be good to work with Mr Harra?

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By taxdigital
21st Jun 2023 13:00

Harra: HMRC ‘underestimated’ MTD complexity

Nope - he and his team clearly overestimated their ability to manage and run the most important organ of the state.

In a market, driven by the forces of demand and supply, a customer can choose between brands, substitute products, providers etc. HMRC's customers are left with no choice.

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Morph
By kevinringer
21st Jun 2023 13:07

"Jim Harra admitted to the committee it had “underestimated the overall scale and complexity of the challenge for us [HMRC], the taxpayer and their agents in making the transition”."

Since 2015 we have been telling HMRC it had underestimated the complexity of MTD ITSA but HMRC plugged their ears. How much resources would HMRC have saved if HMRC had listened to us at the time? HMRC started the pilot in 2017. Why has it taken HMRC so many years to suddenly realise we were right all along?

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Replying to kevinringer:
By ireallyshouldknowthisbut
22nd Jun 2023 10:22

Thing is, they have not understood the complexity of just the *first* part of this, ie the really easy piddly bit, quarterly filing which yes is harder than VAT, but not that much.

The bit they are yet to wrap their tiny minds around is the vast complexity of the main tax return which they are planning to do away with or quarterly reporting makes even less sense than normal.

If you took jim for a walk up a mountain, he would be standing at the bottom in flipflops, saying "well it cant be that hard" and having got out of the gate of the carpark after several days and various misteps and problems is confidently telling everyone its a couple of steps to the top as he has seen a picture of the mountain and its only about 4 inches highm which everyone else looks on agog saying "wtf is this guy on about?"

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Replying to ireallyshouldknowthisbut:
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By creamdelacream
27th Jun 2023 07:12

They're not doing away with the "main tax return", it is quarterly reporting on the self employment and property sections of the tax return, the rest remains, to be completed annually. I am not saying I agree with it anymore, it is just worth pointing that out.

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Replying to creamdelacream:
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By NotAnAccountant2
27th Jun 2023 08:15

creamdelacream wrote:

They're not doing away with the "main tax return", it is quarterly reporting on the self employment and property sections of the tax return, the rest remains, to be completed annually. I am not saying I agree with it anymore, it is just worth pointing that out.

I'm not sure it's quite as simple as that. Although I'm not convinced that HMRC quite know what they're planning so I won't try to give my interpretation of their confusion...
(I agree that 'They're not doing away with the "main tax return"' but it's not 100% clear that the "main tax return" will be available to everybody. OTOH, this means they're leaving open the option to abandon MTDfIT even after the first tranche goes live.)

My sandbox account recently got deleted. I used to periodically start it up, run a few tests, update for any changes, and then let it sit again.

But this time I got an email:
"Your account will be deleted in -2 days" and despite me (trying to) connecting within a few hours of that email it was too late. I can't be arsed to re-register right now - I don't think we'll be caught in 2027, let alone 2026 but I might resurrect it if I'm bored one weekend.

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Replying to creamdelacream:
Morph
By kevinringer
29th Jun 2023 10:26

Originally HMRC required every business to submit separate quarterly returns, then a final annual return, then the taxpayer submits a return for non-business items such as savings interest, pension contributions etc. This meant a sole trader with a rental property would be required to submit 2x4 quarterly returns, 2x1 final business returns and 1x non-business return = 11 returns in total. This was before basis period reform when the submissions would be based on each business' financial year end. One argument for basis period reform was to "simplify" filings and should enable one quarterly return per taxpayer and not per business. But I've no idea if this is what HMRC are now planning now that HMRC have at long last admitted they have underestimated MTD complexity.

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By hje
21st Jun 2023 13:09

Then he should resign - stop rewarding failure.

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Replying to hje:
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By djtax
22nd Jun 2023 14:26

Agreed - but what's the likelihood of arise Sir Jim when he retires!

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By Justin Bryant
21st Jun 2023 13:28

This MTDfIT CIoT survey does not seem to be limited to CIoT members.

https://www.tax.org.uk/MTD_ITSA_survey

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Replying to Justin Bryant:
Morph
By kevinringer
21st Jun 2023 14:20

Thanks Justin. I've just filled it in.

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Replying to kevinringer:
the sea otter
By memyself-eye
21st Jun 2023 15:02

Me too - and i've retired!
My responses were not favourable...

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Replying to memyself-eye:
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By Catherine Newman
21st Jun 2023 16:13

Mine weren't either.

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Replying to Justin Bryant:
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By johnjenkins
22nd Jun 2023 11:23

Justin did you notice the sly way at question 13 that the VAT return was referred to as an "update"?

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Replying to Justin Bryant:
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By nelsonsbk
23rd Jun 2023 08:54

Yes, filled in. We should all be doing this...

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Replying to Justin Bryant:
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By nelsonsbk
23rd Jun 2023 08:54

Yes, filled in. We should all be doing this...

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Replying to Justin Bryant:
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By nelsonsbk
23rd Jun 2023 08:54

Yes, filled in. We shuld all be doing this...

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By GHarr497688
21st Jun 2023 13:42

I can't believe they sit as they do and come out with such a load of almost plausible rubbish. Totally shocking and the reason I will retire soon

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Morph
By kevinringer
21st Jun 2023 14:37

It's no wonder HMRC under-budgeted the cost of MTD ITSA if HMRC under-budgeted the complexity. The fact HMRC under-budgeted by a factor of 5 implies they under-budgeted the complexity by a factor of 5. Alarm bells should have been ringing in HMRC way back in 2017 because back then HMRC said they genuinely expected 400,000 taxpayers to have signed up for the pilot by the end of 2017, yet 6 years later it was only 15 who had signed up: that is a mere 1 in 26,667 of HMRC's initial estimation = 0.00375%. With all the evidence way back in 2017 including the results of the consultations, why didn't HMRC take stock? Heads should roll in HMRC for getting this so wrong and ignoring all the evidence over the years.

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Replying to kevinringer:
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By NotAnAccountant2
21st Jun 2023 15:03

kevinringer wrote:

It's no wonder HMRC under-budgeted the cost of MTD ITSA if HMRC under-budgeted the complexity.

I'm not sure I could be as generous as to say "HMRC under-budgeted the complexity of MTD." I think HMRC deliberately stuck their heads in the sand and ignored any and all complexity.

Jointly owned property is hardly unusual. More complex ownership structures with ownership shared between more that just married couples might be rarer but hardly hard to anticipate.

And yet they've still failed to come up with answers even to the simplest questions like "who needs to keep records for a jointly owned property?"

I can guess what is really going on - the big software companies see MTD as a money spinner for them, and jointly owned property is one of those "lock-in" items that will enable them to extend their reach to people who would otherwise use the cheapest way possible to meet their obligations. They literally don't want HMRC to define what should happen, they want to provide a solution where Aegs will be used by the company director's accountant and now they can also charge a subscription to the company director's brother because that's the only way the brother can now submit his MTD quarterly subscriptions.

The other thing that I'm looking forward to is MTD cloud app companies going bust and/or people losing all access to all of their cloud data. It will happen, it's going to be fun to watch when it does. Most likely it will be a very cheap provider with a free tier that suddenly becomes paid for for everybody (otherwise it goes bust). Quite likely it will be a non-uk company so almost nothing HMRC/HMG can do about it either. Tens of thousands of taxpayers losing their in-progress data in one month...

This will, of course, not happen until it's already live...

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Replying to kevinringer:
Tornado
By Tornado
21st Jun 2023 16:11

Ironically, if HMRC had consulted an Accountant, they would have had a better chance of getting their figures right.

What numpty actually thought they would have anywhere near 400,000 people taking part in their Pilot. An Accountant would have put them right on that fantasy right from the start.

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Replying to Tornado:
Morph
By kevinringer
21st Jun 2023 16:54

I was in one of the meetings where HMRC stated their belief that 400,000 would voluntarily pilot MTD ITSA. The HMRC numpty who announced this admitted he was a HMRC IT person and not a HMRC tax person. He had no experience of taxpayers, businesses or tax. We accountants in the meeting did not hold back telling HMRC how unrealistic their expectations were. But HMRC had no interest in listening because the MTD-believers within HMRC had absolute confidence that IT would win the day.

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Replying to kevinringer:
Tornado
By Tornado
21st Jun 2023 17:11

kevinringer wrote:

I was in one of the meetings where HMRC stated their belief that 400,000 would voluntarily pilot MTD ITSA. The HMRC numpty who announced this admitted he was a HMRC IT person and not a HMRC tax person. He had no experience of taxpayers, businesses or tax. We accountants in the meeting did not hold back telling HMRC how unrealistic their expectations were. But HMRC had no interest in listening because the MTD-believers within HMRC had absolute confidence that IT would win the day.

That makes it so much worse.

Ignoring sound advice from professionals is unforgivable and then carrying on after that advice proved to be correct, is an insult to all of us.

The man has to go soon, along with his vanity project, and a much more suitable person appointed who is not so arrogant. His judgement at best is questionable but he does seem good at distorting the facts in his favour.

I wonder if the IT people that advised him were the ones that left in droves when IR35 was amended.

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Replying to Tornado:
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By djtax
22nd Jun 2023 14:37

Be careful what you wish for - he could end up replaced by the current HMRC number 2, who has no tax background and seems to believe in'digital by default' even more fervently than JH.

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By ireallyshouldknowthisbut
21st Jun 2023 14:59

In a commercial business you would simply abandon the project at this point.

Only a government would possibly continue to throw more money after such a shockingly bad investment.

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Replying to ireallyshouldknowthisbut:
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By Yossarian
21st Jun 2023 16:15

A commercial business would have realised it was going nowhere and abandoned it in about 2017, and would probably have sacked most of the people involved in it by now.

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Tornado
By Tornado
21st Jun 2023 15:45

The Horizon Scandal (currently elsewhere on AWEB) should be a clear warning that software/systems need to be thoroughly tested to destruction before being put into general use.

We are still looking with bemusement at HMRC who are trying to present their half-cocked and leaking like a sieve MTD project as being the answer to everything, when it barely has its head above water and has had the merest whiff of testing.

We should not be required to use sub-standard and possibly dangerous software/systems without thorough testing under all possible conditions, but I can say that I would be the first to take action against HMRC if I was somehow humiliated by a Horizon type of event.

P.S. Did Jim Harra really refer to "Mending Fences" with software developers instead of Mending Bridges, or maybe he really means this and wants to ensure that they do not bother him any more.

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Replying to Tornado:
Morph
By kevinringer
21st Jun 2023 16:09

Because HMRC has finally (after 8 years) woken up to the complexity of MTD ITSA, is it possible HMRC have also woken up to how HMRC have been led down the garden path by the software industry, which is why he refers to "fences" and not "bridges"?

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Replying to kevinringer:
Tornado
By Tornado
21st Jun 2023 16:13

Chuckle :-)

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Tornado
By Tornado
21st Jun 2023 16:20

Harra: HMRC ‘underestimated’ MTD complexity

One does wonder how someone in Jim Harra's position could have underestimated the complexity of MTD when all around him could see the error.

Is he really the right person to head up this very important Government Department?

I nominate my 6 year old grandaughter who has no agenda and sees things as they are and can spot an error almost before it happens.

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By KD1182
21st Jun 2023 19:43

Jim Harra is probably one of the worse leaders HMRC have ever had. He might genuinely have egomania, completely full of himself and constantly denies anything is ever HMRC’s fault.

Needs to be held to account for the failings of HMRC under his watch.

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Replying to KD1182:
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By raju m
22nd Jun 2023 10:21

He should be given an early retirement and rewarded by king charles with a new medal called - Time waster award- and HMRC can employ Big Boris.

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By Tom+Cross
22nd Jun 2023 09:13

One wonders if the man has a pulse. He’s certainly devoid of any common sense.
Possibly time to bring in a new face?
HMRC is broken and this man must shoulder most of the responsibility.

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By TB93
22nd Jun 2023 09:34

That's an understatement

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