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HMRC has ‘enormous amount of work’ to deliver MTD on time

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Accountants, taxpayers, professional bodies and software companies have expressed severe doubts about the feasibility of the current Making Tax Digital timetable in submissions to a group of MPs investigating the project.

12th Jul 2023
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In written evidence submitted to the Public Accounts Committee’s Progress with Making Tax Digital inquiry, a range of contributors from across the accounting profession and beyond handed down a blistering verdict on the project, and the tax authority’s ability to deliver on its new timeline.

The submissions criticised HMRC’s failure to consult with and listen to taxpayers, agents, professional bodies and software vendors, spoke of the Revenue’s ‘limited understanding’ of how businesses operate, and expressed frustration at a lack of clarity over how MTD would work in practice.

The flagship tax digitisation project has been beset by delays, with its current timetable expected to deliver its income tax self assessment element eight years behind schedule, and a recent National Audit Office paper reported that the scheme will come in more than £1bn over budget.

MTD timelines ‘extremely challenging’

In an appearance before the committee three weeks ago, HMRC chief executive Jim Harra admitted the government had underestimated the scale and complexity of the project.

However, HMRC officials told MPs they were confident about the prospect of delivering Making Tax Digital for income tax self assessment (MTD ITSA) to its new timelines – those with incomes above £50,000 will join the programme in 2026, those in the £30,000 to £50,000 bracket will join in 2027, while the Treasury is currently reviewing whether MTD  quarterly reporting is appropriate for people with income between £10,000 and £30,000.

However, the evidence provided to MPs from the world of business, tax and accountancy expressed severe doubts about HMRC’s ability to get the project online at its current schedule. 

The Association of Tax Technicians (ATT) said there remains “an enormous amount of work to do” to deliver MTD in a workable and valuable form by 2026.

BASDA, the trade body for business software developer companies in the UK, stated that despite being almost six months on from the delay announcement in December 2022, the project is “truly no further forward regarding certainty and confidence” 

ICAEW stated it is “extremely concerned” about whether HMRC’s latest timetable is achievable and called for “fresh thinking” on MTD ITSA for all businesses – proposing a refocussing of the project on what can “realistically be delivered in 2026”, with requirements for businesses to maintain digital records decoupled from a requirement for quarterly updates.

The Chartered Institute of Taxation (CIOT) submission stated the revised timetable remains extremely challenging, citing “major limitations within HMRC”, while the Low Incomes Tax Reform Group (LITRG) points out that there are still many practical issues to overcome if MTD is going to move forward for any businesses. 

While the overall verdict was unanimous, the various submission teased out a range of issues that are likely to severely hamper HMRC’s efforts to meet its current MTD schedule.

Unresolved complexities

With a project as wide-ranging and complex as MTD ITSA, there were always going to be knotty problems the project’s architects needed to tackle. However, eight years down the line the following stumbling blocks have been raised multiple times with HMRC but have yet to be satisfactorily resolved:

  • The treatment of jointly owned properties
  • Accommodating taxpayers with multiple agents
  • Providing a coherent definition of what a digital record should look like
  • The frequency of updates and whether these can be made cumulative
  • The interaction of the MTD reporting period with Basis Period Reform

HMRC officials told MPs that since December 2022 the tax authority has been undertaking a series of ‘co-creation’ events involving unnamed stakeholders “with the ambition of resolving the most pressing design issues within the coming months”.

While welcomed by the accounting profession, ICAEW stated the sessions “should have been started earlier” (the first was not held until the end of March 2023), while BASDA called them “several years late in coming,” stating they still don’t provide clarity on the exact scope needed to go forward.

Pilot must not fail to take off

Many of the submissions also called out HMRC’s failure to adequately test MTD ITSA under its pilot scheme, which at one point had just nine participants due to tight entry criteria.

“Any timetable must ensure there can be a full cycle of testing (including an end-of-year submission) plus time to make changes depending on the pilot results before mandation. Even with the rephasing of the programme, this is looking like it will be a challenge,” stated the LITRG submission.

The pilot is currently closed to new entrants, but HMRC officials told MPs they had 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.

Several bodies raised concerns that due to the unresolved complexities mentioned above and other issues such as HMRC resourcing, vendor participation and widespread public cynicism, getting a large-scale, full cycle of testing in before the first mandation date will be challenging. A full cycle would run for almost 21 months, for example from 6 April 2024 to 31 January 2026, as the 2024/25 tax return has a deadline of 31 January 2026 for submission. However, the penalty process is likely to take much longer. and if HMRC plans to test its penalty system alongside MTD ITSA the trial would need over two years.

HMRC resources

Another issue raised consistently in submissions was that of HMRC resourcing. 

The Association of Accounting Technicians (AAT) noted that HMRC customer service staff numbers have been cut by 24% in the past five years. According to AAT, this has translated into “unacceptably low” service levels. 

“HMRC must properly resource its customer services,” said the submission. “AAT members have been increasingly frustrated with delays and business disruption from dealing with HMRC with hours spent waiting on phone lines and chasing letters. This is ultimately hampering progress with adopting MTD as it damages the taxpayer’s trust in HMRC.”

The ATT stated that while the move to digital services “is part of the proposed solution to this problem”, in the early stages the transition to MTD will increase demand on HMRC for support as taxpayers will inevitably struggle to adjust to the new processes.

The CIOT backed this up with examples from the move to MTD for VAT, citing the plummeting performance of HMRC’s VAT helplines in early 2019 following numerous issues with VAT digitisation.

Availability of software

For software developers, HMRC’s decision to reduce the size of MTD ITSA’s scope has had huge consequences, particularly for smaller software houses hoping to take advantage of ‘first-mover’ status to develop new and innovative products. Two vendors have already left the market and more are expected to exit in the coming months.

The mood amongst developers is understandably downbeat, with BASDA members who had interacted with HMRC as part of the project labelling the tax authority ‘mistargeted’, ‘insincere’, ‘stagnant’ and ‘internally driven’. 

A session involving BASDA members and other developers estimated they had cumulatively invested at least £29m in the development and provisioning of MTD for ITSA and suspected that because of the heavy emphasis on the project, they had lost at least the same amount again in not pursuing other revenue-generating opportunities.

Many vendors are now unwilling to commit to further work given the consistent delays to the rollout and changes in the scope of MTD, and depending on the outcome of the review for the smallest businesses, the market for MTD software could be smaller still than expected prior to the December 2022 postponement, reducing vendors’ target market still further. 

“MTD relies on software being available, whether commercially, free from HMRC, or both,” stated the ATT’s submission. “The lack of incentive for and engagement from developers therefore presents a risk to the programme.”

Accountant and taxpayer scepticism

The ATT also flagged that the repeated postponement of MTD mandation means that tax professionals (and businesses) may well be sceptical as to whether MTD for ITSA will ever happen.

“Engagement among these groups and willingness to prepare themselves, their systems and their clients is therefore low,” said the ATT’s submission. “This cynicism is likely to also exist among the whatever proportion of unrepresented taxpayers are aware of MTD.”

AccountingWEB will follow up this article next week with a special report on what the future could look like for the Making Tax Digital project

Replies (28)

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By ireallyshouldknowthisbut
12th Jul 2023 12:20

Nothing has really changed since the project started except that some of the fundamental issues that kills this project stone dead have finally made it up the chain to the decision makers.

Any sane project would have noted those on the initial scoping - its been obvious this end since day one - and being saying "the project is a dud" but here we still are talking about it as if it realistically could be launched and function as HMRC claim it will.

It's good to know the developers are publically withdrawing support. Without developers, there can be no project.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
12th Jul 2023 20:57

I foretold the failure of the project (although I'll admit to not having forecast how long the dying tremors could be prolonged) within a couple of months of its initial announcement.

Why (given that there wasn't even an outline specification to criticise)?
Because, at the meeting in the bowels of 100 Parliament St, all the excitement wasn't about the project (let alone its transformative objectives) ... the cheering was led by the contracted-in consultants who'd won their bid for this to be a flagship for 'agile' development.

It was so obvious then, and remains so now, that no-one in charge had the first clue what this involves ... but they'd swallowed the falsely-baited hooks (greater flexibility, quicker, cheaper, etc) nonetheless!

And that's why it will still fail ... they are still wedded to the wrong controls (or lack of them) and to insubstantial objectives (or lack of them).
Just because you've spent a fortune building prototypes of aeroplanes out of solid lead, fuelled by gas ignition, that can't achieve liftoff ... doesn't mean you should keep going in the hope it will somehow transmogrify into a nuclear-fusion powered spaceship.

When will someone explain the concept of sunk cost fallacy to the Treasury?

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By Joe Alderson
12th Jul 2023 12:20

They should scrap the lot and stop wasting tax payers money.

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By Catherine Newman
12th Jul 2023 12:27

Quickbooks Desktop worked perfectly well for me but has been withdrawn. I am scrabbling around trying to find out how to change software suppliers as I will not be paying a penny more to Intuit. It seems I will have to set up opening balances with my new software supplier.

This has all come about as a result of the now doomed MTD introduction.

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Tornado
By Tornado
12th Jul 2023 13:31

"tax professionals (and businesses) may well be sceptical as to whether MTD for ITSA will ever happen."

I think it will not happen and is already dead. All that needs to be done is nail the lid on the coffin and bury it.

I also think we need to start again and this time involve everyone interested to establish the aims of the project and perhaps use AI for assessing and planning the best way to achieve those aims. All for a fraction of the cost of MTD so far.

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By GHarr497688
12th Jul 2023 17:53

I am coming out of Accountancy on 30th September 2023. I have been living in a state of flux since all this rubbish was first announced in 2015. HMRC need to cancel this nonsense and start listening to those expected to make it work.

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By [email protected]
12th Jul 2023 18:30

HMRC need to employ competent staff or use consultants with the necessary abilities rather than ex HR staff, Tax staff, help desk staff with a bit of IT knowledge to deliver a proper scoped project. Rather than have a big idea and try and develop as the project proceeds.
HMRC staff attend and fail project management courses but are still trying to deliver this MTD project.

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By listerramjet
13th Jul 2023 09:35

MTD for VAT was a pointless white elephant. MTD for self assessment is beyond stupid.
Surely the focus for government should be simplifying and de-politicising the whole tax code, whilst for HMRC it should be to improve its administration. These system follies are a diversion.

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Replying to listerramjet:
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By raju m
14th Jul 2023 10:50

No MTD for VAT was a great big black elephant. A lot of HMRC earned huge bonuses and big payrises.

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By swimmer
13th Jul 2023 09:42

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

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

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By Ben Alligin
13th Jul 2023 09:49

Some people need to head back to the golf course and stay there - well one particular HMRC director of MTD!!

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By Mr J Andrews
13th Jul 2023 09:57

It would be interesting to be a fly on the wall at a board or team meeting at 100 Parliament St.
Clearly the indoctrinated numbskulls are clueless as to how to run the show. The most discussed and debated topic must be to fix a date for the next board or team meeting.

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By HLB
13th Jul 2023 09:57

“an enormous amount of work to do” - no s**t Sherlock. And there doesn't seem to be anyone with competence at HMRC to do it. At last the professional bodies are coming out of their bunkers and asking relevant questions and reflecting their members concerns. Too late for me. I was so fed up with HMRC and the lack of action by my professional body that I decided to retire a few years earlier than I could have. So, good luck and my best wishes to all of you that will have to work your way through what will undoubtedly still be a mess.

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Replying to HLB:
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By raju m
14th Jul 2023 10:52

I totally agree with your comments

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By agknight
13th Jul 2023 10:01

The timetable is irrelevant until its recognised a need to go back to base.

What is the benefit or business = none. What tax will be gained from this = none, or less

Quarterly reporting for businesses below Vat threshold is a waste of time and money. Its also irrelevant in hospitality and construction, where each quarter can vary so much from the last. To suggest that the small jobbing builder is going to waste time valuing quarterly WIP is living in fantasy.

Forcing small businesses to have a 31st march year end is wrong for businesses and wrong for the accounting profession. For us it polarises work to one point in the year - thus pushing out work completion date to the future, when with variable dates we are able to schedule a more timely completion.

These points may sound low level and trivial, but thats from where the project should have started.

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By Self-Employed and Happy
13th Jul 2023 10:30

Having MTD for anything other than VAT registered business is insane, we've said it for so long, we could have saved HMRC over £1b which they could have invested in the absolute shambles of their current non MTD services.

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By moneymanager
13th Jul 2023 10:33

The amount of time, money, and effort expended on a project is no indication of the validity of the end objective or process being followed, BILLIONS of pounds have been expended by governments, business, and individuals on so called "PCR tests" which although, contrary to some, were originally announced by the corporate entity originator as intended to reduce clinical diagnosis to the nucleic acid level (i.e. removing the actual human from the process), do no so thing and their use outside of a lab for technical research is inherently fraudulent, chasing a chimerea of something that hasn't been proven to exist with a tool that couldn't prove its presence anyway, STOP MTD.

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By Di
13th Jul 2023 10:50

£1bn overbudget what a waste and nobody accountable!
Shame on the accountants working with HMRC on the MTD project that they did not point out how unworkable MTD is in light of the complex tax system we have.
Its good to have ideas but they need to be practical.
Stop putting a time frame out until you know the system will work and let businesses concentrate on doing their business and not worrying about software, tax and compliance.
End of rant!

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By johnjenkins
13th Jul 2023 10:55

I posted a question some time ago about the demise of HMRC.
Surely now is the time for a re-think of the administration of out tax system.
Government, listen, we have the knowledge and the workforce to not only takeover the admin, but to allow HMRC to do what they should be doing and that is investigating and collecting. Yer I know "I'm talking to the trees".

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By flightdeck
13th Jul 2023 11:32

"HMRC chief executive Jim Harra admitted the government had underestimated the scale and complexity of the project"

Er, no, Jim. YOU and YOUR DEPARTMENT have underestimated. Got nothing to do with Westminster.

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By BryanS1958
13th Jul 2023 12:12

That headline should be amended to say 'An enormous amount of unnecessary work'.

If it ain't broken, don't try and fix it.

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By indomitable
13th Jul 2023 15:50

"In an appearance before the committee three weeks ago, HMRC chief executive Jim Harra admitted the government had underestimated the scale and complexity of the project.

However, HMRC officials told MPs they were confident about the prospect of delivering Making Tax Digital for income tax self assessment (MTD ITSA) to its new timelines"

You have to laugh at the incompetence. In any other walk of life you would likely be sacked but in the public sector you probably get promoted. In the meantime it is our money they are wasting!!

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By jamiea4f
13th Jul 2023 16:02

What exactly are Harra's qualifications for being in charge of the tax system and wasting enormous amounts of taxpayer's cash, whilst at the same time turning HMRC from a functioning organisation into a gibbering wreck? Still, no doubt he'll get a nice clock and a knighthood when whoever is responsible for these things works out he's an idiot and kicks him out for the next stooge...

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Replying to jamiea4f:
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By johnjenkins
14th Jul 2023 10:41

Although I take the point that Jimbob hasn't exactly helped an ailing HMRC, Gordon Brown is the man we have to thank for starting the demolition of HMRC, when he started the demolition of the small business.

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By steve 12321
13th Jul 2023 16:50

Why are they wasting more time /money on this stupid project? No benefits, just additional costs and wasted time for tax payers. It will not raise more money. Stop! Stop! Stop!

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Replying to steve 12321:
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By raju m
14th Jul 2023 10:58

HMRC employees will get big bonuses from huge penalties they will charge to most businesses.!!!!!!!!!!

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By Catherine Newman
14th Jul 2023 08:15

The Education Secretary was on the news this morning saying how the Government would fund fund the public sector pay rises and said departments had to re-prioritise. I kept thinking scrapping MTD. Let's hope they do.

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By Brodders
14th Jul 2023 09:39

Given it was meant to be delivered years ago, I think the ship has rather sailed on it being "on time". The whole thing was madness from day one.

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