Source · Select Committees · Public Accounts Committee
Recommendation 4
4
Accepted
Reassess customer compliance costs for Making Tax Digital and prepare a robust updated business case.
Conclusion
In seeking further investment in the programme, HMRC has not been open enough about the substantial costs that Making Tax Digital will impose on many taxpayers. In 2021, HMRC published research that showed customers will incur both upfront transitional costs and ongoing costs when Making Tax Digital for Self Assessment is introduced. It expects complying with the programme to cost taxpayers on average £330 upfront, with some facing costs close to £1,000. However, HMRC excluded £1.5 billion in upfront transitional costs for customers in its cost- benefit analysis in its business case seeking further investment for the programme in May 2022. It also excluded upfront transitional costs of £640 million in its 2023 business case which was also seeking further funding. Its latest figures indicate business taxpayers could have to pay a total of more than £1.9 billion to comply Progress with Making Tax Digital 7 with the new arrangements over the first five years, including £1.2 billion if the programme is extended to self-employed businesses and landlords with incomes between £10,000 and £30,000. HMRC has not said how many customers will face the highest transitional costs and how this varies for each income bracket. We are concerned about how much Making Tax Digital could cost customers. It is essential that HMRC is fully transparent in future about both the costs and benefits of the programme to both the public purse and to customers. Recommendation 4: Before finalising its proposals to extend Making Tax Digital to lower income taxpayers, HMRC should: • fully reassess the costs for customers to comply with Making Tax Digital for Self Assessment, taking account for inflation and any significant design changes made when finalising its plans; and • Use this to prepare a robust updated business case for Making Tax Digital for Self Assessment.
Government Response Summary
The government agreed and stated HMRC has already reassessed customer costs for Making Tax Digital, which will be published in a Tax Information and Impact Note in Q4 2023-24. The next business case iteration will fully update on costs and benefits, ensuring all customer costs are included in the NPV calculation.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. improve the design of MTD for ITSA. These changes followed extensive collaboration with accountancy, business and landlord representative bodies, and software developers; and they were informed by research with landlords and self-employed customers. HMRC has reassessed costs to customers as a result of these changes as well as the government’s decision to retain the income threshold for mandating customers into MTD for ITSA at £30,000. This has been developed with the input of stakeholders in business and the accountancy professions as well as the Administrative Burdens Advisory Board. HMRC has also conducted a comprehensive review of the evidence feeding into estimates, bringing in the latest internal and external data available. These estimates will be published in a Tax Information and Impact Note alongside amendment regulations in the fourth quarter of 2023-24. The current MTD business case has spend approval until 31 March 2025, and the next iteration will provide a full update on costs (HMRC and customer) and the benefits of the programme in line with approvals timelines. HMRC continues to ensure that these estimates are kept under review, updated as necessary and included within ministerial advice. HMRC will also ensure that all estimates on customer costs are included in the net present value (NPV) calculation within business cases, and separate narrative and annexes, in line with National Audit Office (NAO) recommendations.