Source · Select Committees · Public Accounts Committee
Recommendation 32
32
We were concerned about the impact of Making Tax Digital on the smaller taxpayer, such...
Conclusion
We were concerned about the impact of Making Tax Digital on the smaller taxpayer, such as a retired person with rental income from one property. We noted that other administrative tax changes, such as on-line self-assessment, have not provided expected benefits to taxpayers because of problems with software.58 We pointed out that it felt like Making Tax Digital might lead to small taxpayers serving HMRC rather that HMRC serving them.59 We asked HMRC how Making Tax Digital would benefit small taxpayers. HMRC noted that its evaluation suggested that VAT traders found that Making Tax 50 Qq 120, 125–126 51 Q 131 52 C&AG’s Report, para 1.32 53 HMRC, HMRC quarterly performance report: July to September 2021, November 2021 and HMRC, HM Revenue and Customs Outcome Delivery Plan: 2021 to 2022, July 2021 54 C&AG’s Report, paras 2.28, 2.31 55 HMRC, Policy paper Extension of Making Tax Digital for Income Tax Self-Assessment to Businesses and Landlords, 23 September 2021 and HMRC, Guidance Using Making Tax Digital for Income Tax, October 2021 56 Q 54 57 Qq 61–62 58 Qq 56–57, 65 59 Q 62 18 HMRC Performance in 2020–21 Digital had made dealing with their tax affairs easier. HMRC also pointed out that self- employed taxpayers with income under £10,000 a year would not be mandated to be part of Making Tax Digital.60
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.