Making Tax Digital – Government respond to MPs’ recommendations

The PAC had drawn on the evidence of CIOT, ATT and LITRG, among others, in concluding that “HMRC’s design of Making Tax Digital has not taken sufficient account of the realities facing business taxpayers and agents.” The committee said that HMRC should ensure “that all its future proposals for digitalising the tax system: start with what taxpayers need; are demonstrably better for them than existing arrangements; and the plans are supported and therefore can be championed by taxpayer representatives, including its own Administrative Burdens Advisory Board”.

However, in their response, the government disagree, saying that while it is “a priority for government is to make it easy for taxpayers to get tax right” this needs to be balanced  against other objectives, including raising revenue and tackling the tax gap. “While these often align, there can be trade-offs to consider,” states the response.

The government also declines in its response to produce separate assessments of how much difference to tax revenue is made by (i) more frequent submissions of Self Assessment data and (ii) by digital submissions. It states it is “not possible to estimate robustly the effects of the separate components in isolation, since quarterly digital updates help to ensure software is used timeously”.

However the government does commit in its response that:

• HMRC will continue work with external stakeholders on detailed policy design elements ahead of mandation in 2026, alongside continuing a private beta testing programme in 2024-25 and a public beta in 2025-26 to ensure that service design meets users’ needs.
• Any future decisions that affect customers or delivery partners – such as any future decision to amend the income threshold for mandation into MTD – will provide adequate time for all parties to prepare.
• Updated estimates of the costs to customers of MTD will be published in the fourth quarter of 2023-24 (and indeed these were published on 22 Feb, here).

Among a number of citations of CIOT and ATT the PAC's November report notes a survey which found that nearly 90% of the bodies’ members thought the VAT element of the programme had not reduced errors and that the cost to comply had far exceeded government estimates.

The response from CIOT and ATT to the report can be read here. The report itself can be read here.

The government’s responses to each of the PAC’s 11 recommendations are summarised below. The full response can be read on pages 2-10 (as labelled) of this document.

Costs and delays

PAC conclusion 1 - Widespread and repeated failures in HMRC’s planning design and delivery of Making Tax Digital have led to increased costs and several delays to the Making Tax Digital programme.

PAC recommendation 1a - HMRC should urgently test that its existing plans are sufficiently detailed and rigorous to ensure the successful delivery of the remainder of the programme and report to the Committee on its findings for Making Tax Digital for Self Assessment as part of its Treasury Minute.

Government response - Recommendation agreed and already implemented.

PAC recommendation 1b - HMRC should, as part of its Treasury Minute response, specify in detail how it will hold senior leaders accountable for delivering against the programme’s timetable and budget, and what consequence there will be for any further timetable and budget overruns.

Government response - Recommendation agreed and already implemented.

Questions over MTD for ITSA

PAC conclusion 2 - It is unacceptable that seven years in, with £640 million of taxpayer’s money spent on the programme as a whole, so many questions remain about how Making Tax Digital for Self-Assessment will work.

PAC recommendation 2a - HMRC should, in partnership with its programme stakeholders including customers, tax agents and software providers, resolve design issues and write to the Committee by April 2024 to explain how each of the significant outstanding design issues have been resolved. As part of this, HMRC should consider what steps it can take to simplify arrangements for Self Assessment taxpayers.

Government response - Recommendation agreed and already implemented.

PAC recommendation 2b - HMRC should, by Summer 2024, undertake and publish a robust assessment of how much difference to tax revenue is made by (i) more frequent submissions of Self Assessment data and (ii) by digital submissions.

Government disagrees.

Interests of taxpayers

PAC conclusion 3 - HMRC’s design of Making Tax Digital has not taken sufficient account of the realities facing business taxpayers and agents.

PAC recommendation 3a - In addition to Making Tax Digital, HMRC should research what services customers would find most helpful, drawing on customer views as well as international research, and publish its findings by Autumn 2024.

Government disagrees.

PAC recommendation 3b - HMRC should ensure that all its future proposals for digitalising the tax system: start with what taxpayers need; are demonstrably better for them than existing arrangements; and the plans are supported and therefore can be championed by taxpayer representatives, including its own Administrative Burdens Advisory Board.

Government disagrees.

Costs for taxpayers

PAC conclusion 4 - In seeking further investment in the programme, HMRC has not been open enough about the substantial costs that Making Tax Digital will impose on many taxpayers.

PAC recommendation 4 - Before finalising its proposals to extend Making Tax Digital to lower income taxpayers, HMRC should:
• fully reassess the costs for customers to comply with Making Tax Digital for Self Assessment, taking account for inflation and any significant design changes made when finalising its plans; and
• Use this to prepare a robust updated business case for Making Tax Digital for Self Assessment.

Government agrees. Target implementation date: Spring 2025

Future project delivery

PAC conclusion 5 - HMRC’s poor track record of repeated delays to the Making Tax Digital programme and its lack of conviction in its latest timetable gives us little confidence that it will deliver the rest of the programme on time.

PAC recommendation 5a - HMRC should, as part of its Treasury Minute response, explain how it will assure itself that the timetable and budget for Making Tax Digital for Self-Assessment is realistic and how it will use independent technical assurance and other sources of evidence to provide this assurance.

Government agrees. Recommendation implemented

PAC recommendation 5b - If further changes to the delivery timetable are necessary, HMRC should communicate this clearly, early and definitively, to provide certainty to its delivery partners and customers.

Government agrees. Target implementation date: April 2026

MTD software

PAC conclusion 6 - We are concerned that the repeated delays and poor design of the Self-Assessment phase of the programme is deterring software providers from developing quality progress with Making Tax Digital products and will ultimately put customers at risk.

PAC recommendation 6a - HMRC should, within three months, write to the Committee and set out how it will ensure that it strikes the right balance between ensuring competition, quality and access to software for its Making Tax Digital VAT and Self Assessment customers.

Government agrees. Recommendation implemented

PAC recommendation 6b - HMRC should, within three months, write to the Committee explaining what assurance customers can take from its accreditation of software and how it will protect taxpayers if the software (rather than the taxpayer) makes mistakes in tax submissions or does not safeguard taxpayer data sufficiently

Government agrees. Recommendation implemented