Source · Select Committees · Public Accounts Committee
Recommendation 7
7
Rejected
External events and lack of contingency caused Making Tax Digital delays and lost revenue.
Conclusion
HMRC also told us about the external events that contributed to the delays in the programme’s delivery. These included EU Exit and the COVID-19 pandemic’s impact on business taxpayers’ readiness and engagement, and government policy announcements, in particular the Health and Social Care Levy in 2021.13 HMRC told us that the delays to Making Tax Digital for Self Assessment will likely mean the Exchequer misses out on additional tax revenue of £1.75 billion.14 We asked HMRC whether part of the problem was that it had not given itself long enough to introduce the changes needed as part of the programme. HMRC told us that up until the re-phasing of the Self-Assessment element of the programme in December 2022, it did not have any contingency in the programme, for example, to cope with the impact of the Health and Social Care Levy.15 It told us that it had now built-in contingency for unanticipated design issues and policy announcements to the delivery timetable for the rest of the programme.16
Government Response Summary
The government disagrees with the committee’s implicit finding of £1.75 billion in missed tax revenue due to MTD for Self-Assessment delays, providing its own OBR-certified benefit forecasts for MTD for ITSA.
Government Response
Rejected
HM Government
Rejected
2.6 The government disagrees with the Committee’s recommendation. 2.7 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. 2.8 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. 2.9 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). 2.10 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. 2.11 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. 2.12 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.