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HMRC has lost sight of needing to put taxpayers at the heart of changes to the tax system, warns PAC.
The House of Commons Public Accounts Committee (PAC) released its report Progress with Making Tax Digital on 24 November.
The report expresses concerns that the additional burdens of Making Tax Digital (MTD) will make tax more difficult for taxpayers. It says: “Without a rigorous focus on what will make the tax system easier for everyone there is a risk that the planned changes will add further complications rather than simplify it.”
Caroline Miskin, Senior Technical Manager Digital Taxation at ICAEW, says: “The points raised by PAC echo ICAEW’s concerns about MTD ITSA. Eight years on from the original announcement, MTD ITSA has lost its way and needs to refocus on the original objective of making it easier for taxpayers to comply with their tax obligations.”
Aside from the spiralling costs of the MTD programme, the report also criticises the potential costs for taxpayers.
In 2016, the total programme cost for VAT, income tax and corporation tax was estimated at £222m. HMRC now expects that MTD VAT and MTD income tax self assessment (ITSA) will cost a total of £1.3bn – a 400% increase in real terms for only part of the programme.
The report slates HMRC for a lack of transparency on both the transitional and ongoing costs that taxpayers will face in complying with MTD ITSA. HMRC’s latest figures indicate business taxpayers could have to pay more than £1.9bn to comply with MTD over the first five years. This includes £1.2bn if the programme is extended to self-employed businesses and landlords with incomes between £10,000 and £30,000.
ICAEW has repeatedly questioned the anticipated additional tax revenue that HMRC expects MTD ITSA will deliver and the extent to which it will close the tax gap. The PAC report calls on HMRC to undertake and publish a robust assessment of how much difference to tax revenue that more frequent submissions of self assessment data and digital submissions will make. PAC has also asked HMRC to fully reassess the costs for taxpayers to comply with MTD ITSA and prepare a robust updated business case for MTD ITSA.
Like ICAEW, PAC has also requested assurance that the timetable for delivery remains realistic and an explanation of how the significant outstanding design issues will be resolved. These design issues include how the system will support taxpayers with multiple agents and for people who share ownership of property.
The report also flags that repeated delays and poor design of MTD ITSA risk deterring software providers from developing quality products. PAC has requested details of how HMRC will ensure that it strikes the right balance between competition, quality, and access to software. It has also requested an explanation of how HMRC will protect taxpayers if software (rather than taxpayers) make mistakes in submissions and if software does not safeguard taxpayer data sufficiently.
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