Source · Select Committees · Public Accounts Committee
Recommendation 16
16
We questioned the Department about the effectiveness of Making Tax Digital in closing the tax...
Conclusion
We questioned the Department about the effectiveness of Making Tax Digital in closing the tax gap, particularly in tackling tax evasion. HMRC explained that the programme is not designed to tackle tax evasion by small businesses. Other solutions are required to address the risk of tax evasion. The aim of Making Tax Digital is to reduce the level of error and failure to take reasonable care, including failure to keep good records. HMRC told us that the Office for Budget Responsibility, which is independent of HMRC, has validated its estimates for the extent to which Making Tax Digital for VAT will reduce the VAT tax gap.39
Government Response
Not Addressed
HM Government
Not Addressed
5.1 The government agrees with the Committee’s recommendation. Ta rget implementation date: Summer 2021 5.2 In July 2020, the government published Building a trusted, modern tax administration system, a vision for the future of tax administration, designed to improve resilience and effectiveness. This included an expansion of Making Tax Digital (MTD) to the remaining VAT population from April 2022; and to unincorporated businesses and landlords with over £10,000 total business and property income for Income Tax from April 2023. 5.3 MTD helps to reduce avoidable mistakes which cost over £8.5 billion in 2018-191. MTD also enables businesses to see a real time picture of their finances and facilitates increased productivity. Businesses using MTD VAT software are already benefiting from improved working practices as well as wider productivity gains and reductions in input errors2. During the COVID-19 pandemic, many have turned to digital tools and an extension of MTD aims to meet the needs of the increasingly digitally engaged business population. 5.4 Costs will vary from business to business, being dependent on factors such as business size, complexity, degree of digital capability and the cost and functionality of the software used. Free software products may suit businesses with the simplest affairs; many businesses will be able to achieve MTD compliance at minimal cost. 5.5 Since the July 2020 announcement, HMRC has undertaken significant engagement with business and accountancy representative bodies and software developers in order to further understand the associated costs of future MTD mandation. HMRC continues to work with stakeholders to ensure estimates are accurate and will do all it can to minimise costs. Revised estimates will be published in due course.