Recommendation 4

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.