Source · Select Committees · Public Accounts Committee
Recommendation 19
19
Accepted
HMRC significantly understated Making Tax Digital's additional costs for customers in business cases.
Conclusion
HMRC originally expected that Making Tax Digital would reduce the burden of submitting tax returns on customers. In June 2023, the NAO reported that HMRC now forecast that complying with the programme will create additional costs for customers, and that it had significantly understated these costs in its cost-benefit analysis in recent business cases seeking further investment in the programme.44 In 2021, HMRC published research that showed that upfront transitional costs for Self Assessment customers with incomes above £10,000 would be around £1.4 billion, and net ongoing costs would be around £150 million a year. HMRC excluded £1.5 billion in upfront transactional costs for Self Assessment and VAT customers in its cost-benefit analysis for its May 2022 business case seeking further investment for the programme. It also excluded upfront transitional costs of £640 million in its 2023 business case.45
Government Response Summary
The government has agreed to reassess and publish customer costs for MTD for ITSA, including them in the net present value calculation of future business cases as per NAO recommendations. This follows recent design changes and revised income thresholds for the program.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Target implementation date: Spring 2025 At the 2023 Autumn Statement, the government announced changes to simplify and 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.