Government promises to reassess MTD admin burden

26 Jan 2021

The Government has published its response to the October Public Accounts Committee (PAC) Tackling the tax gap report.

It appears in pages 10 -14 of the latest Treasury Minutes.

Five out of the PAC’s seven recommendations have been accepted, including one prompted by an ATT/CIOT survey of members on Making Tax Digital. The October report had stated that it was “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.” PAC said they are “not convinced that for all businesses there will be the benefits to them or tax collection that HMRC envisages. For example, the findings of a survey of businesses and agents, carried out by the Chartered Institute of Taxation and the Association of Taxation Technicians during December 2019 and January 2020, raised doubts about the effectiveness of Making Tax Digital in reducing errors and increasing productivity as expected by the government. The survey findings also suggest costs to business of complying with the programme far exceed government estimates.” As a consequence they recommended that: “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 roll-outs.”

The Government agrees with this recommendation. However the response reasserts the government view that ‘MTD helps to reduce avoidable mistakes’ and ‘facilitates increased productivity’ for business.

It adds: “Since the July 2020 announcement, HMRC has undertaken significant engagement with business and accountancy representative bodies and software developers in order to further understand the associated costs of future MTD mandation. HMRC continues to work with stakeholders to ensure estimates are accurate and will do all it can to minimise costs. Revised estimates will be published in due course.”

The Government also agrees with the PAC’s conclusion that HMRC are not sufficiently clear about levels of uncertainty when publicising the tax gap. And the Government backs the committee’s recommendation that HMRC should state more clearly (for example in its Annual Report or tax gap press notice) that its tax gap figures are highly uncertain and subject to revision. HMRC will now explore methodologies for calculating and presenting ranges around more of its tax gap statistics, particularly for those elements not based on sample data. In Measuring tax gaps 2021 edition, which is due for publication in June, HMRC will publish ranges where they can be calculated, describe where this is not possible, and provide an uncertainty assessment against those areas where there is no method for calculating a meaningful range.

But the Government disagrees with the committee recommendations that HMRC should include analysis of the tax gaps for each industrial sector in its future publications, and that it should look into doing tax gap analysis for the four nations of the UK. The Government says HMRC provides tax gap estimates by tax type, taxpayer group and behaviour but data and modelling techniques do not allow for some forms of subgroup analysis to be achieved comprehensively. In the absence of sufficient data, breaking down the total tax gap by industry sector would entail a high level of assumption and would result in extremely uncertain estimates, they say.

The Government agrees with PAC’s concern that HMRC does not include sophisticated and undesirable tax planning by the wealthy and large businesses in its estimates of the tax gap. The PAC had said that Parliament needs to know when taxpayers do not follow the spirit of the rules, and how much tax revenue is lost as a result. However the Government argue that this has already been implemented in the form of publishing the ‘avoidance tax gap’.

Government response to House of Commons Public Accounts Committee Tackling the tax gap report was published last week.

By Hamant Verma