MPs warn that MTD has lost sight of taxpayer benefitsby
Hot on the heels of Making Tax Digital changes announced at the Autumn Statement, a committee of MPs has highlighted concerns about the costs, delays and deliverability of the programme, stating HMRC has lost sight of needing to put taxpayers at the heart of changes to the tax system and risks 'making tax difficult'.
After a relatively long layoff, it’s been like London buses for the nation’s Making Tax Digital watchers.
Firstly, as part of the fringe act to Wednesday’s Autumn Statement jamboree, the government announced a series of revisions, easements and promises for its Making Tax Digital for income tax self assessment regime, with the headline item being that it won’t be extended to those earning under £30,000 for the foreseeable future.
And yesterday the Public Accounts Committee (PAC), a cross-party group of MPs responsible for examining the value for money of government projects, released a report on the flagship digital tax transformation project which highlighted that HMRC's failures in planning, design and delivery of Making Tax Digital had lead to costs and delays.
Commenting on the report, committee chair Dame Meg Hillier said: “When reporting on proposals for digitalising the tax system, our committee should not have to be recommending that HMRC start with what taxpayers need … But seven years and £640m into the Making Tax Digital programme, we are concerned HMRC is also succeeding in making tax difficult.”
Taxpayers asked to spend more and do more to comply
In its Progress with Making Tax Digital report, the PAC flagged concerns about the additional burdens and costs that MTD will impose on taxpayers, despite its initial aim to reduce them.
“HMRC has lost sight of its original aim to reduce the burden on taxpayers and is increasing the burdens it imposes by asking self assessment taxpayers to pay for third-party software and file tax returns quarterly,” stated the report.
“While Making Tax Digital will substantially benefit HMRC by improving its systems, taxpayers will be asked to spend more and do more to comply.”
The report accused HMRC of not being “open enough” about the additional software and training costs MTD will impose on many taxpayers. While research conducted by the Revenue found that the average upfront costs for taxpayers of complying with MTD would be £330 upfront, with some facing costs close to £1,000, the PAC stated that HMRC had excluded transitional costs totalling more than £2bn from two business cases seeking further investment for the programme.
“Imposing significant additional burdens on customers in the middle of a cost of living crisis could not be less welcome,” Hillier commented.
“HMRC’s exclusion of billions of pounds of projected costs when seeking investment for the programme is utterly extraordinary, and future transparency on costs and benefits must be non-negotiable.”
‘Widespread and repeated failures’
The report also highlighted “widespread and repeated failures” in HMRC’s planning, design and delivery of MTD.
“It is unacceptable that seven years in, with £640m of taxpayer’s money spent on the programme as a whole, so many questions remain about how [MTD ITSA] will work,” stated the report.
While some points raised have been addressed by the Autumn Statement MTD announcement, which committed to building solutions for multiple agents and announced easements for joint landlords, as former tax partner, ICAEW past president and ABAB board member Paul Aplin recently pointed out, there is “still a long way to go and a lot to deliver.”
The report also highlighted that despite HMRC’s aim to pilot the programme with 15,500 people, by 2023 it had just 137 participants.
“The self assessment part of the programme was always going to be a more complicated task than for VAT,” stated the report. “Despite this, HMRC announced a fast timetable without anticipating the additional complexity and its subsequent work to design and test the system has been far too limited.”
It added that HMRC’s poor track record of repeated delays to the programme and a “lack of conviction” in its latest timetable gives MPs “little confidence” that it will deliver the rest of the programme on time.
HMRC has currently set itself a target of April 2025 to be ready for a near-unrestricted voluntary pilot of 1.6 million self assessment taxpayers with incomes over £30,000, leaving it less than two years to be ready.
With “major uncertainty” remaining over its design choices, the report flagged that HMRC will have little time to work through and test technical solutions to issues such as how data security will be achieved for taxpayers with multiple agents or how a free service will work for those with the simplest affairs.
HMRC told the PAC it expects that introducing MTD for VAT and self assessment will now cost a total of £1.3bn, compared to its original estimate of £222m in 2016 for all three taxes in the programme (with no word on when MTD for corporation tax will be delivered, or how much this will cost).
Responding to the report, an HMRC spokesperson told AccountingWEB: “The additional tax revenue expected from MTD has increased to £3.9bn, offsetting any additional costs. MTD continues to provide a high return on investment in delivering this complex programme, building on the successful digitalisation of VAT.”
‘We need a realistic plan and a timetable’
Speaking to AccountingWEB from Westminster, Hillier said HMRC had misjudged the scale and complexity of the project – as tax authority chief Jim Harra admitted to the PAC in an evidence hearing back in June.
“HMRC has been over-optimistic about the project from the beginning, and that’s seen the cost of it soar 400% from the initial forecast,” said Hillier. “This happens too regularly in government – when a Whitehall plan hits reality in terms of the granular issues businesses face.
“We need to have a realistic plan and a timetable, which HMRC hasn’t had so far,” she continued. “They haven’t tested it well and it’s been delayed multiple times. Most people just want certainty, honesty and transparency from their tax system, but it feels like many have lost confidence.
“I’ve seen it before with other projects. If you lose the confidence of intermediaries, it’s really hard to win it back
However, Hillier added it would be a “bold step” to mothball the programme now.
“We’ll be watching this closely. It has a relentless momentum and would be hard to stop now, but not impossible – look at HS2. We haven’t analysed how much it would cost to stop it, but it would have to be a fast decision at the start of the next Parliament.
“If done well it could still have benefits,” she said. “The wins are still worth going for, even if the delays have dented stakeholder confidence. As HMRC has stated, the data it could bring in could be a real aid in setting future policy, but they just need to bear what the taxpayer thinks in mind."