Continuing delays to Making Tax Digital

The head of HMRC has told MPs that the reason for Continuing delays to Making Tax Digital is that it had underestimated the complexity involved. This has caused eight years of delay and a failed pilot scheme.

In a Public Accounts Committee hearing, MPs wanted to know the reasons for the continuing delays to Making Tax Digital for income tax. They also probed the failure of the pilot scheme and asked whether the digital programme would actually reduce the tax gap.

The chief executive of HMRC, said: ‘Looking back, we found that we had underestimated the overall scale and complexity of the challenge, both for us and the taxpayer and their agents, in making the transition to MTD.

‘We had announced MTD without perhaps doing all of the necessary work to identify the complexity in migrating data from our old systems and the quality of that data meant that it was not a simple matter of migrating it, which ultimately distracted us away from our next phase of MTD.’

‘With the resources we have we can only cover a relatively small proportion of small businesses and also there’s a churn in the small business population which limits the future revenue benefits of compliance work.

‘I would argue in terms of burdens on customers, being investigated by HMRC and getting an unexpected tax bill is more burdensome than helping everyone get it right in the first place.’

I would agree with that to be fair.

Instead of launching in April 2024, the first phase of MTD for income tax is now planned to begin in April 2026, for sole traders and landlords with income above £50,000.

Jo Rowland, director general of transformation at HMRC, said: ‘It had always been the plan to begin piloting with small numbers and eventually grow out. By 2025, we intend to operate a public pilot, being as nearly unrestricted as possible.

‘The reason why we need to control the pilot very tightly is that we’re taking in very detailed evaluations of the performance of the new system and also the customer’s journey, and that automatically feeds into the new design as we progress.’

Referring to the pilot, Rowland mentioned that it offered a ‘number of ways’ to rectify any issues, including a ‘co-creation’ forum with stakeholders, alongside a number of representative bodies on HMRC’s programme board to ‘understand any technical issues’ and fix them when problems arise.

Harra said: ‘For self assessment, we have a project within the programme called HMRC Assistance, which is about us putting real time nudges and prompts in for users as they use MTD, which will also guide them if we think they’re potentially going to get something wrong.

I think this could be very good. If it works.

‘That will contribute to the additional tax revenues which we believe we will get from self assessment, and as we get evidence that that works, we are looking at the case of going back to VAT and adding that into the service as well.’

Again, I would welcome this.

‘All MTD software is certified and must meet HMRC standards. But the main issue here is how we authenticate agents to allow them to make changes within our system and who can access what. It’s about deciphering the design of the authentication process.’

HMRC still expects the programme to generate a positive return, raising an additional £3.9bn in tax by 2033-34.

However, the continuing delays to Making Tax Digital will cost an estimated £1.5bn in lost tax, according to a National Audit Office (NAO) report.

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