Source · Select Committees · Public Accounts Committee
Recommendation 2
2
Rejected
Resolve outstanding design issues for Making Tax Digital for Self Assessment with all stakeholders.
Conclusion
It is unacceptable that seven years in, with £640 million of taxpayer’s money spent on the programme as a whole, so many questions remain about how Making Tax Digital for Self Assessment will work. HMRC originally intended to introduce Making Tax Digital for Self Assessment from 2018. But after just 18 months, it announced in July 2017 that it would delay the introduction of any changes to Self Assessment until at least April 2020. HMRC now does not expect to be able to deliver the first phase until at least 2026. Seven years in, HMRC is still in the development stages of its plans for Self Assessment. It has yet to figure out how to make the programme work for important elements, such as how the system will support taxpayers with multiple agents, how the system will work for people who share ownership of property. HMRC expects that requiring customers to submit tax records quarterly as well as annually will encourage taxpayers to improve the accuracy of their record keeping. Stakeholders, however, are concerned 6 Progress with Making Tax Digital about aspects of the design, including the need for quarterly digital reporting, and how far this will help businesses in forecasting tax liabilities, particularly those with seasonal trading patterns. Recommendation 2a: HMRC should, in partnership with its programme stakeholders including customers, tax agents and software providers, resolve design issues and write to the Committee by April 2024 to explain how each of the significant outstanding design issues have been resolved. As part of this, HMRC should consider what steps it can take to simplify arrangements for Self Assessment taxpayers. b) HMRC should, by Summer 2024, undertake and publish a robust assessment of how much difference to tax revenue is made by (i) more frequent submissions of Self Assessment data and (ii) by digital submissions.
Government Response Summary
The government disagreed with the recommendation, stating it is not possible to robustly estimate the separate effects of frequent vs. digital submissions. They have instead applied MTD for VAT evaluation findings to MTD for ITSA, expecting a 15% tax gap reduction.
Government Response
Rejected
HM Government
Rejected
The government disagrees with the Committee’s recommendation. MTD software is designed to ensure records are kept accurately and in a timely manner. It is not possible to estimate robustly the effects of the separate components in isolation, since quarterly digital updates help to ensure software is used timeously. While initial assumptions were made, these have been overtaken by evidence from MTD for VAT which does not allow for disaggregation of the source of the additional tax revenue. A 2022 evaluation estimated additional tax revenue from MTD for VAT in 2019-20 of at least £185 million, providing strong evidence that MTD reduces the tax gap. This provides confidence that the approach will also yield benefits in ITSA. HMRC has now applied the MTD for VAT evaluation findings to MTD for ITSA and expects a reduction of around 15% in the tax gap from error and failure to take reasonable care. This methodology has been approved by the independent Office for Budget Responsibility (OBR). Based on the Autumn Statement 2023 forecast, OBR-certified MTD for ITSA benefits (including digital prompts) are: • £25 million in 2025-26; • £120 million in 2026-27; • £465 million in 2027-28; • £780 million in 2028-29. These estimates assume quarterly updates and software together encourage higher- quality and timely record keeping. HMRC will evaluate benefits of MTD for ITSA as new evidence is available. Research with customers shows around one-third currently wait to the year end to update records, indicating that MTD would increase the frequency of record keeping. Evidence of behaviour and estimates will improve as MTD for ITSA is implemented.