Source · Select Committees · Public Accounts Committee
Recommendation 7
7
The benefits of Making Tax Digital to those with simple tax affairs are not clear.
Conclusion
The benefits of Making Tax Digital to those with simple tax affairs are not clear. The requirement for taxpayers to keep tax records and submit quarterly returns to HMRC digitally is a key part of its 10-year modernisation strategy. From April 2024, HMRC will extend Making Tax Digital to 4.2 million taxpayers with business and/ or property income over £10,000, including small landlords and sole traders, to meet their income tax obligations. HMRC considers Making Tax Digital is making tax easier, keeping tax in line with the digital age, making business more productive and will provide better data if it needs to introduce further support schemes like SEISS. However, it is far from clear how those taxpayers with the most straightforward tax affairs, such as a retired person with rental income, will benefit from completing quarterly digital self-assessment returns. There is also no guarantee that the software they will need to submit returns digitally on will be readily available or easy to use, although HMRC is confident this will be the case. We question the value of asking the large number of taxpayers with simple tax affairs to take on additional costs and reporting. Recommendation: HMRC should, in its Treasury Minute response, explain how the introduction of Making Tax Digital will be made easier, and less costly, for taxpayers with the simplest and most straightforward tax affairs.
Government Response
Not Addressed
HM Government
Not Addressed
7.1 The government agrees with the Committee’s recommendation. Recommendation implemented 7.2 Research conducted by HMRC and peer reviewed by independent academics indicates that Making Tax Digital (MTD) for VAT is likely to have generated Additional Tax Revenue (ATR) of a similar magnitude to the Autumn Budget 2021 OBR-certified forecast for 2019-20 of £115 million HMRC have worked hard to minimise the costs and maximise the benefits of MTD. The government’s commitment to free software for the MTD Income Tax Self-Assessment (ITSA) service for those with the most straightforward affairs is central to this, removing one of the financial barriers to participating in MTD. 7.3 A study of 2,005 businesses in the VAT service, found the majority reported the transition to Making Tax Digital (MTD) was easy and that they experienced benefits from MTD. 7.4 The government expects users of the MTD for ITSA service will experience similar benefits. While they will provide more updates to HMRC under MTD for ITSA, they are likely to save time through not having to make as many amendments at the end of the year. 7.5 Small businesses make the greatest number of errors contributing to the Tax Gap and account for the largest proportion of ATR that the government expects to see from MTD for ITSA. 7.6 The government understands that the transition to MTD will not be easy for everyone. Working closely with stakeholders, HMRC will continue to improve the support offering to those who may be unrepresented or less digitally capable and provide exemptions for those who cannot go digital.