Making Tax Digital for VAT: Treating Small Businesses Fairly Contents

Chapter 8: HMRC’s responsiveness to our 2017 report

158.We welcomed the deferral of the start date for MTD for a year to April 2019 and the decision to begin the implementation of MTD with VAT, which has the advantage of reducing the number of taxpayers affected. However, many of the conclusions and recommendations in this report repeat those made in our 2017 report. We have had a sense of déjà vu throughout our inquiry.

159.In 2017 we recommended revisiting the impact assessment. HMRC has not revised their original assumptions and their assessment of the costs to businesses lacks credibility. In 2017 we recommended that HMRC reassess the impact of MTD on the tax gap. HMRC still claim a yield which tax professionals regard as unachievable, although they are now designing a study to examine errors.107

160.In 2017 we recommended an action plan to give early notice to businesses of the changes. Communication has been largely restricted to agents so far. In 2017 we recommended a workable system for claiming digital exclusion. Taxpayers remain unclear about what rules HMRC operate and how to apply.

161.In 2017 we recommended a comprehensive pilot. HMRC’s MTD for VAT pilot has focused on testing software.

162.In 2017 we recommended better assessment of the support needed by businesses and plans to deliver that support. The evidence in this inquiry suggests that HMRC still does not appreciate the magnitude of the challenge facing many businesses.

163.Our final conclusion in 2017—that Government had to pay attention to widely held serious concerns—seems to have been ignored.

The impact of Brexit

164.Once it became clear how much resource HMRC needed to put into Brexit, HMRC reviewed its projects and reprioritised them, including aspects of MTD. The opportunity was missed for a more fundamental reappraisal of what could be achieved with MTD in the context of the pressures imposed on HMRC by Brexit preparations and those on taxpayers likely to be affected.

165. HMRC should have concluded that MTD needed to be slowed down, phasing in businesses as happened for Pensions Auto-Enrolment. The reluctance to take this approach may be due to the revenues which HMRC have persuaded the Government will flow from MTD, despite the uncertainty about how much it will actually yield.

166.We have been struck with a sense of déjà vu throughout our inquiry. It is disappointing that many of the concerns raised in evidence to this inquiry have repeated issues addressed in our 2017 report. There is considerable frustration amongst taxpayers about HMRC’s lack of responsiveness to their concerns.

167.On most issues we raised in 2017 HMRC took no meaningful action. HMRC and businesses are unlikely to have a smooth and efficient transition to digital tax reporting if it is mandated on the current timetable, particularly for businesses implementing any changes necessitated by Brexit at the same time. We believe HMRC’s unwillingness to listen and learn lessons will result in difficulties for taxpayers.

168.We have been concerned by HMRC’s optimism in its evidence to this inquiry. There seems a failure to appreciate, or at least acknowledge publicly, the extent of the risks to implementation that Making Tax Digital for VAT faces. We recommend that HMRC’s Board challenges the Department’s current assessment of the risks.

169.It is possible that many of the problems in implementing Making Tax Digital stem from inadequacy of resources devoted to the enterprise. We urge the Government to take steps to ensure that an adequate budget that is protected by a ring-fence should be available for Making Tax Digital.

170.The Financial Secretary to the Treasury’s refusal to give oral evidence during our current inquiry does not convince us that the Treasury is taking seriously the risks of implementation, or the widespread criticism of HMRC’s proposals. These issues need serious and prompt attention by ministers.

171.We request that HMRC writes to update the Economic Affairs Committee every six months until the entire MTD programme is rolled out.

172.It is time to take a fresh look at the plans for MTD. The modernisation of the tax system and encouragement to businesses to embrace technology should be a positive move. A different approach is needed to deliver maximum advantage for all.

107 Q 45 (Theresa Middleton)

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