MPs have ‘little confidence’ in Making Tax Digital success

MPs on the Public Accounts Committee (PAC) have little faith in HM Revenue and Customs’ (HMRC) Making Tax Digital (MTD) programme being delivered on time, and slam the department for failing to be transparent about the increased costs the programme is placing on taxpayers.

The programme, which aims to digitise the UK tax system, was originally due to be fully completed by 2020. However, the department has continually rephased and moved the timeline for completion of MTD.

In 1 April 2019, HMRC began to roll out MTD, but only for VAT returns for businesses with a taxable turnover of more than £85,000.

Three years earlier, in 2016, HMRC had predicted that VAT returns and MTD for Self Assessment, the latter which was originally due to be launched in 2018, would generate £600m yearly in additional tax revenue by 2020-21.

However, according to a report by the PAC, by 2023, the pilot testing for self assessment had only had 137 participants, well short of the department’s aim to pilot the programme with 15,500 people. HMRC itself projects that it will not be able to deliver the first phase of the self assessment part of the programme until at least 2026.

“The repeated delays to Making Tax Digital have delayed the benefits and increased costs hugely,” the report said, adding that this has been caused by “widespread and repeated failures” in the department’s planning, design and delivery of the programme.

In the seven years the programme has run, more than £640m in taxpayers’ money have been spent on the programme, which the PAC said was “unacceptable”, particularly when “so many questions remain about how MTD for Self Assessment will work”.

“Seven years in, HMRC is still in the development stages of its plans for Self Assessment. It has yet to figure out how to make the programme work for important elements, such as how the system will support taxpayers with multiple agents, how the system will work for people who share ownership of property,” the report said.

The report added that the department has also failed to be transparent about costs to the taxpayers. Its latest business cases omitted that it could cost business tax payers more than £1.9bn to comply with “the new arrangements over the first five years, and HMRC has not said how many and which customers will face the highest transitional costs”.

The initial aim of MTD was to make it easier for people to get their tax right and reduce the burden on tax payers. However, instead, the report said, it has increased the burden.

“While Making Tax Digital will substantially benefit HMRC by improving its systems, taxpayers will be asked to spend more and do more to comply,” the report said.

“HMRC has lost sight of its original aim to reduce the burden on taxpayers and is increasing the burdens it imposes by asking Self Assessment taxpayers to pay for third-party software and file tax returns quarterly.”

The PAC report added that the committee is concerned about how much the programme could cost customers.

PAC chair Meg Hillier said that when “reporting on proposals for digitising the tax system”, it shouldn’t be the committee’s job to recommend to HMRC that it starts with what the taxpayers need.

“In an ideal world, one would hope this would simply go without saying,” she added. “But seven years and £640m 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.”

This is only one of several reports criticising the department’s progress on MTD. Earlier this year, a report from the National Audit Office (NAO), said the recurring delays and constant changes to the programme has undermined its credibility, while a previous PAC report warned in 2020 that MTD could impose unreasonable costs on taxpayers.