Source · Select Committees · Public Accounts Committee
Recommendation 20
20
Accepted
HMRC omitted significant customer costs from its Making Tax Digital business case analysis.
Conclusion
We asked HMRC why it omitted significant costs from the cost-benefit analysis it included in its May 2022 business case, and whether the decisions made on the basis of the business case would have been the same if this information had been included. HMRC said that it had made “a technical interpretation error in how to apply customer costs and 39 Qq 42, 45, 67–68, 71; PTD0007, Written evidence submitted by the Institute of Chartered Accountants England and Wales, 19 June 2023; C&AG’s Report, para 3.29 40 Q42 41 PTD0012, Written evidence submitted by Low Incomes Tax Reform Group, 19 June 2023 42 Q 66; PTD0013, Written evidence submitted by the Business Application Software Developers Association, 19 June 2023 43 Q 66 44 Qq 54–64 ; C&AG’s Report, paras 2, 15 45 C&AG’s Report, paras 3.12–13.18 16 Progress with Making Tax Digital transition costs in the business case”. HMRC told us that it had applied this to the financial case, whereas the NAO had highlighted to it that HM Treasury’s Green Book stated that these costs should have been reflected in the economic case for the programme. It said that while it did not carry the figure through to the right analytical tables in the business case, in accordance with the Green Book, it did estimate customer costs. It asserted that part of the confusion was due to the fact that one of the main drivers for the programme was the additional tax revenue that it would bring, and that it did not consider it to be possible to use the Green Book economic case to make decisions about the programme because the Green Book ignores additional tax revenues. Despite this, HMRC told us that it was confident that decisions about spending on the programme were correct throughout and took account of all the relevant information.46
Government Response Summary
The government agrees to reassess and publish MTD customer costs and ensure all estimates are included in the Net Present Value calculation of future business cases, addressing the committee's observation of past omissions due to 'technical interpretation error'.
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.