Source · Select Committees · Public Accounts Committee
Recommendation 30
30
HMRC’s Making Tax Digital initiative is central to its 10-year modernisation strategy.
Conclusion
HMRC’s Making Tax Digital initiative is central to its 10-year modernisation strategy. It requires taxpayers to keep tax records and submit returns digitally. HMRC introduced Making Tax Digital for VAT first. The largest VAT traders provided digital returns in 2019, and the smaller ones are being required to do so by April 2022.54 HMRC now plans to extend Making Tax Digital to income tax self assessment. From April 2024, 4.2 million taxpayers with business and/or property income over £10,000, including small landlords and sole traders, will be required to submit digital returns each quarter. HMRC had intended to introduce this extension to Making Tax Digital from April 2023 but decided to delay by a year because of the impact of the pandemic and stakeholder feedback.55
Government Response
Not Addressed
HM Government
Not Addressed
7: PAC conclusion: The benefits of Making Tax Digital to those with simple tax affairs are not clear. 7: PAC 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. 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.