Parliament’s Public Accounts Committee (PAC) has said there have been “widespread and repeated failures in the design and delivery of the Making Tax Digital (MTD) programme.
It has published a report on the programme, which is aimed at digitalising the system for business taxes, saying that HM Revenue and Customs (HMRC) has not been open about the costs for taxpayers, and calling for full transparency of costs and benefits.
The publication has come shortly after HMRC indicated that it aims to simplify the system for small businesses.
The PAC report says the design of MTD has lost sight of the need to put customers at the heart of changes, increasing the burdens on some taxpayers. This will be the case particularly for those on self-assessment, who will have to pay for third party software and file tax returns quarterly.
HMRC excluded a total of over £2 billion in upfront transitional costs for customers from its 2022 and 2023 business cases for the programme, and taxpayers could have to pay more than £1.9 billion over the first five years to comply with the requirements.
There are also serious questions over how MTD will work for self-assessment, says the report.
Testing and reporting
It produces a series of recommendations, including that HMRC should urgently test its existing plans, report to the committee on its findings for MTD for self-assessment, and show how it will hold senior leaders accountable for any further timetable and budget overruns.
It also needs to resolve design issues by April of next year, research what services customers would find most helpful, ensure that future proposals for digitalisation start with what taxpayers need, and update its business case for MTD for self-assessment.
The report also says that HMRC should explain what assurance customers can take from its accreditation of software, and how it will protect taxpayers if the software makes mistakes in submissions and does not protect data sufficiently.
Dame Meg Hillier, chair of the PAC, said: “When reporting on proposals for digitalising the tax system, our committee should not have to be recommending that HMRC start with what taxpayers need – in an ideal world, one would hope this would simply go without saying. But seven years and £640 million into the Making Tax Digital programme, we are concerned HMRC is also succeeding in making tax difficult.
“Imposing significant additional burdens on customers in the middle of a cost of living crisis could not be less welcome. HMRC must now look up from what it is doing and research what services customers would actually find most helpful.
“We are also concerned at the substantial costs to be imposed on many taxpayers. HMRC’s exclusion of billions of pounds of projected costs when seeking investment for the programme is utterly extraordinary, and future transparency on costs and benefits must be non-negotiable.”
Earlier criticisms
The PAC report follows another by the National Audit Office, published in June, which emphasised the delays and rising costs of the programme, which had climbed from the original estimate of £226 million in 2016 to £1.3 billion earlier this year.
HMRC has indicated some changes in its approach. Last week it published its own review of the impact of MTD on small businesses and income tax self-assessment, saying it will make design changes to make the system simpler.
These will include simplifying requirements for quarterly updates and for those with more complex affairs, removing the requirement for an end of period statement, exempting some taxpayers, and enabling those using the systems to be represented by more than one tax agency.
In addition, the Government will keep under review the decision on mandating use of the system by businesses and landlords with income below £30,000.
The department is also reviewing the minimum standards for developers of software to be used in the processes, saying it wants to support innovation in the market.
