MPs urge HMRC to examine whether Making Tax Digital is ‘reasonable and affordable’ for taxpayers before proceeding with rollout
PAC tells department it is ‘not convinced’ by expected benefits
MPs on the Public Accounts Committee have claimed that they are “not convinced” by claims about the benefits the Making Tax Digital programme will deliver.
HM Revenue and Customs has, thus, been urged to pause any further national rollouts of the programme until it has made a full assessment of whether it places undue monetary and administrative burdens on taxpayers.
The scheme has already been implemented for VAT payments made by businesses with an annual turnover in excess of £85,000. From April 2022, this is due to be expanded to include all business, regardless of size. The following year, MTD will be further extended to cover individual income tax returns for yearly business or property income in excess of £10,000.
PAC has published a report examining the challenges faced by HMRC in ‘Tackling the Tax Gap’ – which is the disparity between the money owed in taxes and that which is collected – and the progress made by the department in doing so. The gap stood at £31bn in the 2018/19 year.
The MTD programme is seen by HMRC as an important means to help close the gap in taxes due from SMEs, according to MPs.
“HMRC’s primary objective for the Making Tax Digital programme is to help reduce the tax gap attributable to small businesses caused by error and failure to take reasonable care,” the PAC report said.
It added that, while the department seems confident the scheme can deliver on its ambitions, the committee did not yet find sufficient evidence that it will do so.
“It is not clear that Making Tax Digital will help reduce the tax gap or taxpayer costs at a time when individual taxpayers and small businesses are under considerable pressure,” the report said. “The effectiveness of the programme is not yet known but HMRC is confident that it will achieve its aims: improving compliance rates, increasing productivity of businesses and allowing HMRC to realise savings.”
It added: “HMRC tells us that the Office for Budget Responsibility supports its view that the programme will help to close the tax gap, but we are not convinced that for all businesses there will be the benefits to them or tax collection that HMRC envisages.”
MPs pointed to a survey conducted by industry bodies at the start of this year in which tax professionals “raised doubts about the effectiveness of Making Tax Digital in reducing errors and increasing productivity” to the extent predicted by HMRC.
“The survey findings also suggest costs to business of complying with the programme far exceed government estimates,” PAC said. “The Making Tax Digital programme is a logical plan in a world where more and more activity is carried out digitally, but it will impose extra, and possibly unreasonable, costs on some individual taxpayers and small businesses, and may be disproportionate to the gain to HMRC. Some of these businesses may be less able to afford the changes since Covid-19.”
One of the report’s recommendations is that the tax agency should pause any wide-scale implementations until the potential impact of the extra costs and practical demands being placed on businesses have been fully considered.
“HMRC should, as part of piloting future rounds of MTD, assess whether the administrative burden it is imposing on taxpayers is reasonable and affordable before proceeding with further national rollouts,” MPs said.
In response to the report, a government spokesperson said: “Our schemes were designed to minimise fraud from the outset and we have rejected thousands of fraudulent claims. We will not tolerate those who seek to defraud taxpayers and will take action against perpetrators – including criminal prosecution.”
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