Recommendations & Conclusions
13 items
2
Conclusion
Eightieth Report - Progress with Making…
Rejected
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. HMRC originally intended to introduce Making Tax Digital for Self Assessment from 2018. But after just …
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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. HMRC originally intended to introduce Making Tax Digital for Self Assessment from 2018. But after just 18 months, it announced in July 2017 that it would delay the introduction of any changes to Self Assessment until at least April 2020. HMRC now does not expect to be able to deliver the first phase until at least 2026. Seven years in, HMRC is still in the development stages of its plans for Self Assessment. It has yet to figure out how to make the programme work for important elements, such as how the system will support taxpayers with multiple agents, how the system will work for people who share ownership of property. HMRC expects that requiring customers to submit tax records quarterly as well as annually will encourage taxpayers to improve the accuracy of their record keeping. Stakeholders, however, are concerned 6 Progress with Making Tax Digital about aspects of the design, including the need for quarterly digital reporting, and how far this will help businesses in forecasting tax liabilities, particularly those with seasonal trading patterns. Recommendation 2a: HMRC should, in partnership with its 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 it can take to simplify arrangements for Self Assessment taxpayers. 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.
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Government response AI summary
The government disagreed with the recommendation, stating it is not possible to robustly estimate the separate effects of frequent vs. digital submissions. They have instead applied MTD for VAT evaluation findings to MTD for ITSA, expecting a 15% tax gap reduction.
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HM Treasury
3
Conclusion
Eightieth Report - Progress with Making…
Rejected
HMRC’s design of Making Tax Digital has not taken sufficient account of the realities facing business taxpayers and agents. HMRC’s key aim for the programme is to make it easier for taxpayers to get their tax right and help reduce the amount of tax lost due to errors. While Making …
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HMRC’s design of Making Tax Digital has not taken sufficient account of the realities facing business taxpayers and agents. HMRC’s key aim for the programme is to make it easier for taxpayers to get their tax right and help reduce the amount of tax lost due to errors. While Making Tax Digital will substantially benefit HMRC by improving its systems, taxpayers will be asked to spend more and do more to comply. 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. Many stakeholders, including tax experts and software developers, report that up until 2023 HMRC had ignored their advice, including on what the programme needs to do to work for taxpayers. HMRC has increased its engagement with these stakeholders, but this only started in early 2023. Some stakeholders remain concerned about the engagement from HMRC on the design of the Self Assessment system and the impact on customers. Recommendation 3a: 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. 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; and the plans are supported and therefore can be championed by taxpayer representatives, including its own Administrative Burdens Advisory Board.
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Government response AI summary
The government disagreed with the recommendation, explaining that while a priority is to make tax easy, they already engage extensively with taxpayer representatives (ABAB, expert panel, Customer Experience Committee) and conduct research to understand customer needs, publishing findings in TIINs.
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HM Treasury
7
Conclusion
Eightieth Report - Progress with Making…
Rejected
HMRC also told us about the external events that contributed to the delays in the programme’s delivery. These included EU Exit and the COVID-19 pandemic’s impact on business taxpayers’ readiness and engagement, and government policy announcements, in particular the Health and Social Care Levy in 2021.13 HMRC told us that …
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HMRC also told us about the external events that contributed to the delays in the programme’s delivery. These included EU Exit and the COVID-19 pandemic’s impact on business taxpayers’ readiness and engagement, and government policy announcements, in particular the Health and Social Care Levy in 2021.13 HMRC told us that the delays to Making Tax Digital for Self Assessment will likely mean the Exchequer misses out on additional tax revenue of £1.75 billion.14 We asked HMRC whether part of the problem was that it had not given itself long enough to introduce the changes needed as part of the programme. HMRC told us that up until the re-phasing of the Self-Assessment element of the programme in December 2022, it did not have any contingency in the programme, for example, to cope with the impact of the Health and Social Care Levy.15 It told us that it had now built-in contingency for unanticipated design issues and policy announcements to the delivery timetable for the rest of the programme.16
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Government response AI summary
The government disagrees with the committee’s implicit finding of £1.75 billion in missed tax revenue due to MTD for Self-Assessment delays, providing its own OBR-certified benefit forecasts for MTD for ITSA.
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HM Treasury
9
Conclusion
Eightieth Report - Progress with Making…
Rejected
We asked HMRC to explain what Making Tax Digital was expected to deliver for the taxpayer, Exchequer and HMRC when the programme was launched in 2015. It said that Making Tax Digital aimed to make it easier for small businesses and landlords to get their tax right by requiring them …
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We asked HMRC to explain what Making Tax Digital was expected to deliver for the taxpayer, Exchequer and HMRC when the programme was launched in 2015. It said that Making Tax Digital aimed to make it easier for small businesses and landlords to get their tax right by requiring them to keep good records using software. HMRC told us that small businesses accounted for about 48% of the tax gap, which was £15.6 billion overall in 2020–21. It further explained that about £9 billion of the tax gap was down to simple errors and failure to take reasonable care and that was what Making Tax Digital was aiming to address. Making Tax Digital was originally approved with the expectation it would reduce the burdens on customers because digital record keeping would make tax submissions easier.22
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Government response AI summary
The government rejects the committee's observation, stating that it's not possible to robustly disaggregate the effects of MTD components, and presents evidence from MTD for VAT and OBR-certified MTD for ITSA benefits showing significant tax revenue reduction from error and failure to take reasonable care, …
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HM Treasury
10
Conclusion
Eightieth Report - Progress with Making…
Rejected
We received written evidence from taxpayer and agent representatives that expressed their concerns over the additional burdens that Making Tax Digital would impose on businesses and taxpayers. For example, Crundell & Co Accountancy Ltd told us that Making Tax Digital for VAT increased administrative burdens and cost to taxpayers and …
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We received written evidence from taxpayer and agent representatives that expressed their concerns over the additional burdens that Making Tax Digital would impose on businesses and taxpayers. For example, Crundell & Co Accountancy Ltd told us that Making Tax Digital for VAT increased administrative burdens and cost to taxpayers and agents. It said that it believed the programme for VAT and Self Assessment was not workable and would not provide any tangible benefit for customers. It also told us that the programme will move tax specialists and their clients from a simple system of submitting one income tax return per year to a system of submitting four quarterly updates, an adjustment and then final submissions which will add unnecessary complication and administrative burden for small businesses, make them less productive and increase their costs significantly.23 Rossmartin Tax Consultancy Limited similarly told us that the programme’s requirements for VAT businesses was adding additional burden to their agents. It said it was now doing more bookkeeping than ever before and was charging for the service, but it was “low margin and time consuming”. It also said, “there is always the added pressure that there will be an IT failure at critical deadlines”.24
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Government response AI summary
The government rejects the committee's observation regarding additional burdens, stating its priority to make tax easy must balance with raising revenue and tackling the tax gap. It highlights regular engagement with taxpayer representatives and enhanced policy processes to consider taxpayer experience.
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HM Treasury
11
Conclusion
Eightieth Report - Progress with Making…
Rejected
We asked HMRC about the burdens that the Self Assessment programme would place on small businesses. HMRC told us that it had heard the same concerns ahead of the introduction of the programme for VAT as now existed for Self Assessment.25 It told us that, while “the prospect of it …
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We asked HMRC about the burdens that the Self Assessment programme would place on small businesses. HMRC told us that it had heard the same concerns ahead of the introduction of the programme for VAT as now existed for Self Assessment.25 It told us that, while “the prospect of it is quite concerning to people… afterwards they see the benefit”. In 2021, it surveyed taxpayers who had initial concerns about the programme’s additional burden of Making Tax Digital for VAT. The survey found that 80% of respondents found (the software) easy to use; 30% believed there had been a net financial benefit to them; 25% believed it was cost neutral to them; and 14% believed the costs had outweighed the benefits to them.26 However, evidence from stakeholders is less clear-cut about the benefits to VAT customers. The Association of Taxation Technicians 22 Q 15; C&AG’s Report, para 3.12 23 C&AG’s Report Figure 1; PTD0001, Written evidence submitted by Crundell & Co Accountancy Ltd, and Community Accounting Services Ltd, 19 June 2023 24 PTD0002, Written evidence submitted by Rossmartin Tax Consultancy Limited, 19 June 2023 25 Q 55 26 Q 55 Progress with Making Tax Digital 13 and Chartered Institute of Taxation conducted a survey with a sample of their members, which found that nearly 90% thought the VAT element of the programme had not reduced errors, the cost to comply had far exceeded government estimates, although 14% reported an increase in productivity.27 HMRC noted that it had not yet quantified the benefit to businesses from encouraging them to digitise the way they keep their records, but that there was some research that suggested businesses could achieve a 10% productivity boost if they embraced digital accounting software. HMRC told us it was planning to conduct its own research on this and would include the findings in its next business case.28
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Government response AI summary
The government rejects the committee's observation regarding burdens on small businesses, asserting its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It describes ongoing engagement with taxpayer representatives and recent enhancements to policy and service delivery processes.
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HM Treasury
12
Conclusion
Eightieth Report - Progress with Making…
Rejected
We asked HMRC to explain what exactly it was aiming for with the introduction of quarterly updates through digital record keeping, given it was a source of concern for its stakeholders. HMRC said its aim was for customers to keep records in near real-time to help close the tax gap. …
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We asked HMRC to explain what exactly it was aiming for with the introduction of quarterly updates through digital record keeping, given it was a source of concern for its stakeholders. HMRC said its aim was for customers to keep records in near real-time to help close the tax gap. It explained that there can be up to 21 months between a transaction occurring and a taxpayer needing to report that to HMRC as part of their self-assessment return, which was in part why the tax gap existed. HMRC said it was looking to see if it can take out steps, but its overriding aim was to have taxpayers’ submissions and updates happen at the same time to allow it to have information as close to real-time as possible.29 However, stakeholders including the Association of Accounting Technicians and the Institute of Charted Accounts England and Wales wrote to us to express their concerns over the reliability and usefulness of quarterly updates, such as how far this will help businesses in forecasting tax liabilities, particularly those with seasonal trading patterns.30
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Government response AI summary
The government rejects the committee's observation regarding the aim of quarterly updates, reiterating its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It details continuous engagement with taxpayer representatives and improved internal processes for considering taxpayer experience.
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HM Treasury
13
Conclusion
Eightieth Report - Progress with Making…
Rejected
We also received written evidence from the Low Incomes Tax Reform Group (LITRG), which told us that going back as early as 2016 it had repeatedly raised concerns about the additional cost and administrative burden Making Tax Digital will add to taxpayers, especially those on lower incomes or who find …
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We also received written evidence from the Low Incomes Tax Reform Group (LITRG), which told us that going back as early as 2016 it had repeatedly raised concerns about the additional cost and administrative burden Making Tax Digital will add to taxpayers, especially those on lower incomes or who find digital tasks challenging. It also told us that it had concerns over the levels of service HMRC would provide underrepresented taxpayers.31 We asked what support there would be for those going into the Making Tax Digital pilot for the Self Assessment phase. HMRC told us that it had a three-tiered plan for customer support if things go wrong for them when they join the Making Tax Digital programme’s pilot. It explained that in the first instance customers can access support through the software providers they use. Secondly, HMRC said that it had included provisions for customer service in its programme budget. Thirdly, it told us that those who were digitally excluded or needed additional support could contact HMRC for a potential exemption or additional support. HMRC expected an increase in customers who will need additional support but had not estimated how many or developed specific plans on how it will provide additional support, other than for those who will be exempt.32
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Government response AI summary
The government rejects the committee's observation regarding concerns for vulnerable taxpayers and support, stating its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It references ongoing engagement with taxpayer representatives and enhanced policy processes that consider customer experience.
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HM Treasury
14
Conclusion
Eightieth Report - Progress with Making…
Rejected
We asked HMRC, given the concerns about additional burdens on customers, how it would ensure that businesses complied with the programme and compliance didn’t decline. HMRC explained that there were two key requirements that it believed will foster good compliance from business taxpayers using software. The first was a requirement …
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We asked HMRC, given the concerns about additional burdens on customers, how it would ensure that businesses complied with the programme and compliance didn’t decline. HMRC explained that there were two key requirements that it believed will foster good compliance from business taxpayers using software. The first was a requirement 27 PTD0006, Written evidence submitted by the Association of Taxation Technicians, 19 June 2023, PTD0008, Written evidence submitted by the Chartered Institute of Taxation, 19 June 2023 28 Q 55 29 Qq 48, 52–54 30 PTD0004, Written evidence submitted by Association of Accounting Technicians, 19 June 2023, PTD0007, Written evidence submitted by the Institute of Chartered Accountants England and Wales, 19 June 2023, PTD0012, Written evidence submitted by Low Incomes Tax Reform Group, 19 June 2023 31 PTD0012, Written evidence submitted by Low Incomes Tax Reform Group, 19 June 2023 32 Qq 25–27; C&AG’s report, para 3.31 14 Progress with Making Tax Digital to make light-touch quarterly updates to HMRC, which will evidence that taxpayers are keeping their tax records up to date. The second was requiring that the software uploads directly to HMRC systems without the taxpayer or their agent having to intervene or transfer the data into another system, which was where some errors arise. It told us that other than Making Tax Digital, it had not identified any other options that would allow it to address the tax gap among small businesses.33 HMRC’s engagement with stakeholders on Making Tax Digital
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Government response AI summary
The government rejects the committee's observation on ensuring compliance, stating its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It highlights regular engagement with taxpayer representatives and enhanced policy processes to consider taxpayer experience.
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HM Treasury
15
Conclusion
Eightieth Report - Progress with Making…
Rejected
Many of the programme’s stakeholders support the idea of digitalising the tax system.34 We received written evidence from The Association of Tax Technicians (ATT), which told us that it welcomed digital record keeping and the modernisation of the tax system but that it remained concerned about the deliverability of the …
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Many of the programme’s stakeholders support the idea of digitalising the tax system.34 We received written evidence from The Association of Tax Technicians (ATT), which told us that it welcomed digital record keeping and the modernisation of the tax system but that it remained concerned about the deliverability of the MTD programme, and the benefit of current proposals to taxpayers.35 The Institute of Chartered Accountants in England and Wales (ICAEW) also told us that HMRC needed to focus on ensuring the programme delivered reliable, cost-effective and user friendly systems and that it should look more broadly at how the programme will ensure the tax system is fit for the 21st century.36
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Government response AI summary
The government rejects the committee's observation on stakeholder support for digitalization and concerns about deliverability, stating its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It highlights regular engagement with taxpayer representatives and enhanced policy processes to consider …
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HM Treasury
16
Conclusion
Eightieth Report - Progress with Making…
Rejected
The NAO found that the success of the programme for Self Assessment will in part depend on working effectively with tax professionals to ensure smooth design, delivery and implementation of the programme. However, many stakeholders including HMRC’s own Administrative Burdens Advisory Board, which independently provides critical support to HMRC in …
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The NAO found that the success of the programme for Self Assessment will in part depend on working effectively with tax professionals to ensure smooth design, delivery and implementation of the programme. However, many stakeholders including HMRC’s own Administrative Burdens Advisory Board, which independently provides critical support to HMRC in making tax easier, told the NAO that they had concerns about the programme. Many felt that while they were consulted often by HMRC, they saw little action to resolve longstanding concerns and that closer working with tax professional could help resolve matters more quickly.37 Professional bodies told us they had been involved in the design and consultation of the Making Tax Digital programme with HMRC from its inception. For example, ATT had been heavily involved in a consultative capacity in the development to date and ICAEW said it had been very actively engaged with the making tax digital (MTD) programme since the announcement in Spring Budget 2015. But while stakeholders supported the objective of the programme, significant delays have undermined confidence in the programme, and some expressed concerns that HMRC had not consulted with them in the most productive way.38
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Government response AI summary
The government rejects the committee's observation regarding effective collaboration with tax professionals, stating its priority to make tax easy must balance with raising revenue and tackling the tax gap. It highlights regular engagement with taxpayer representatives and enhanced policy processes to consider taxpayer experience.
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HM Treasury
17
Conclusion
Eightieth Report - Progress with Making…
Rejected
In December 2022, HMRC established a plan to work with its stakeholders to solve issues. In March 2023 it started exploring with taxpayer and agent representatives how quarterly updates could work in practice. It explained that it was looking to adopt a “co- creation” approach where it asked taxpayers how …
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In December 2022, HMRC established a plan to work with its stakeholders to solve issues. In March 2023 it started exploring with taxpayer and agent representatives how quarterly updates could work in practice. It explained that it was looking to adopt a “co- creation” approach where it asked taxpayers how best to design a process and ensure they 33 Qq 15, 55 34 C&AG’s Report, para 3.27–3.30 and Figure 9 35 PTD0006, Written evidence submitted by the Association of Taxation Technicians, 19 June 2023 36 PTD0007, Written evidence submitted by the Institute of Chartered Accountants England and Wales, 19 June 2023 37 C&AG’s Report paras 3.27–3.28 38 PTD0004, Written evidence submitted by Association of Accounting Technicians, 19 June 2023; PTD0006, Written evidence submitted by the Association of Taxation Technicians, 19 June 2023; PTD0007, Written evidence submitted by the Institute of Chartered Accountants England and Wales, 19 June 2023; PTD0008, Written evidence submitted by the Chartered Institute of Taxation, 19 June 2023; PTD0011, Written evidence submitted by the Association of Independent Professionals and the Self-Employed, 19 June 2023; PTD0012, Written evidence submitted by Low Incomes Tax Reform Group, 19 June 2023; PTD0013, Written evidence submitted by the Business Application Software Developers Association, 19 June 2023 Progress with Making Tax Digital 15 were able to input into programme’s design and functionality.39 HMRC told us it was working on ways in which the programme’s stakeholders could give feedback directly to the programme’s senior leadership. This included having a member of the representative bodies on its programme board, together with a member of the software development community. HMRC explained it also now had a co-creation forum with software developers, so that it could understand technical issues and fix them immediately.40
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Government response AI summary
The government rejects the committee's observation on HMRC's plans for working with stakeholders, stating its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It highlights regular engagement with taxpayer representatives and enhanced policy processes to consider taxpayer experience.
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HM Treasury
18
Conclusion
Eightieth Report - Progress with Making…
Rejected
Stakeholders such as the Low Incomes Tax Reform Group (LITRG) remain concerned about how realistic HMRC’s plans for implementation are as well as HMRC’s lack of concern or planning for low income and vulnerable taxpayers.41 We also heard that stakeholders had fed back issues and worries about the programme on …
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Stakeholders such as the Low Incomes Tax Reform Group (LITRG) remain concerned about how realistic HMRC’s plans for implementation are as well as HMRC’s lack of concern or planning for low income and vulnerable taxpayers.41 We also heard that stakeholders had fed back issues and worries about the programme on multiple occasions, through numerous communication channels, with no acknowledgement or confirmation they were being listened to or acted upon. For example, the trade body for software developers, Business Application Software Developer Association (BASDA) said it had, “flagged concerns with HMRC and FSTs [Financial Secretary to the Treasury] over the past few years regarding the need for a more fit-for-purpose scope (and accompanying policy areas) along with service delivery and engagement with our industry – citing concerns across all key areas” and “regrettably, there was little productive engagement that gave BASDA and its members confidence that the key issues were going to be properly investigated and resolved in a timely manner”.42 HMRC told us that it “was not going to overlook the need to involve our stakeholders fully so we have a full understanding of all the issues” and that it recognised it had urgent matters to resolve and it had “the right mechanisms in place to bring those designs to fruition as soon as possible”.43 The costs of Making Tax Digital on customers
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Government response AI summary
The government rejects the committee's observation regarding ongoing stakeholder concerns about implementation and support for vulnerable taxpayers, stating its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It highlights regular engagement with taxpayer representatives and enhanced policy processes …
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HM Treasury