Source · Select Committees · Public Accounts Committee
Recommendation 11
11
Rejected
Mixed evidence emerges regarding Making Tax Digital for VAT's actual benefits and costs.
Conclusion
We asked HMRC about the burdens that the Self Assessment programme would place on small businesses. HMRC told us that it had heard the same concerns ahead of the introduction of the programme for VAT as now existed for Self Assessment.25 It told us that, while “the prospect of it is quite concerning to people… afterwards they see the benefit”. In 2021, it surveyed taxpayers who had initial concerns about the programme’s additional burden of Making Tax Digital for VAT. The survey found that 80% of respondents found (the software) easy to use; 30% believed there had been a net financial benefit to them; 25% believed it was cost neutral to them; and 14% believed the costs had outweighed the benefits to them.26 However, evidence from stakeholders is less clear-cut about the benefits to VAT customers. The Association of Taxation Technicians 22 Q 15; C&AG’s Report, para 3.12 23 C&AG’s Report Figure 1; PTD0001, Written evidence submitted by Crundell & Co Accountancy Ltd, and Community Accounting Services Ltd, 19 June 2023 24 PTD0002, Written evidence submitted by Rossmartin Tax Consultancy Limited, 19 June 2023 25 Q 55 26 Q 55 Progress with Making Tax Digital 13 and Chartered Institute of Taxation conducted a survey with a sample of their members, which found that nearly 90% thought the VAT element of the programme had not reduced errors, the cost to comply had far exceeded government estimates, although 14% reported an increase in productivity.27 HMRC noted that it had not yet quantified the benefit to businesses from encouraging them to digitise the way they keep their records, but that there was some research that suggested businesses could achieve a 10% productivity boost if they embraced digital accounting software. HMRC told us it was planning to conduct its own research on this and would include the findings in its next business case.28
Government Response Summary
The government rejects the committee's observation regarding burdens on small businesses, asserting its priority is to make tax easy while balancing revenue raising and tackling the tax gap. It describes ongoing engagement with taxpayer representatives and recent enhancements to policy and service delivery processes.
Government Response
Rejected
HM Government
Rejected
The government disagrees with the Committee’s recommendation. A priority for government is to make it easy for taxpayers to get tax right. However, it needs to balance several objectives for the tax system, including raising revenue and tackling the tax gap. While these often align, there can be trade-offs to consider. HMRC regularly engages a range of taxpayer representatives, including the Administrative Burdens Advisory Board (ABAB), as new services are developed and to better understand issues faced by taxpayers. ABAB provides valuable insight, including on MTD for ITSA, where its views were important in informing the announcements made in the 2023 Autumn Statement. HMRC has also established an expert panel to consult on digital improvement ideas which provides insight into how to implement changes and provide the right support for vulnerable or digitally excluded customers. As part of HMRC’s governance, the Customer Experience Committee, which includes independent expert advisers, provides advice on customer-experience issues. HMRC shares plans for digital improvements with this committee. The government has recently enhanced existing processes which support policy and service delivery, ensuring these consider improving taxpayers’ experience. This includes improving training and internal guidance for policy officials; introducing checkpoints in the policy making process where senior officials review measures from a simplification and customer experience perspective; and ensuring advice to ministers sets out how a measure contributes to making the tax system simpler, fairer or supports growth. HMRC also runs research programmes to build understanding of customer needs, publishing analyses of impacts on individuals and businesses in Tax Information and Impact Notes (TIINs).