Conclusion 5

It is of the utmost importance that HMRC learns lessons from its experience of implementing Making Tax Digital (MTD) and puts customer needs at the heart of plans to improve digital services. The previous Public Accounts Committee reported in 2023 that HMRC had lost sight of the need to put taxpayers at the heart of changes to the tax system. MTD was imposed on businesses without much consultation, and without businesses knowing what the administrative costs were going to be. HMRC completed the rollout of MTD for VAT in 2022, and plans to extend it from 2026–27 to many Income Tax Self Assessment taxpayers. HMRC estimates that MTD imposed net costs on VAT traders of around £300 million over the period 2019–20 to 2023–24. In February 2024, HMRC estimated that extending MTD to Income Tax Self Assessment will impose transitional costs of over £500 million on taxpayers, and will impose ongoing costs on taxpayers which will exceed their ongoing savings by 6 around £200 million each year. There is no strong evidence to date to suggest productivity improvements or other benefits for most VAT traders following the introduction of MTD. recommendation HMRC should ensure it conducts sufficient research into customer needs and design digital programmes and systems which meet those needs. HMRC should evidence its assessment of customer needs in its business cases and in public documents, including Tax Information and Impact Notes.