Accountants, taxpayers, professional bodies and software companies have expressed severe doubts about the feasibility of the current Making Tax Digital timetable.
In evidence submitted to the Public Accounts Committee's inquiry into the progress with Making Tax Digital, contributors from across the accounting profession handed down a blistering verdict on the project, and HMRC's ability to deliver on its new timeline.
The written submissions criticised HMRC's failure to consult with and listen to taxpayers, agents, professional bodies and software vendors, spoke of the Revenue's ‘limited understanding' of how businesses operate, and expressed frustration at a lack of clarity over how MTD would work in practice.
The tax digitisation project's current timetable will see it deliver Making Tax Digital for income tax self-assessment (MTD ITSA) eight years behind schedule, and a recent National Audit Office paper reported that the scheme will come in more than £1bn over budget.
However, HMRC officials told MPs they were confident about the prospect of delivering MTD ITSA to its new timelines - those with incomes above £50,000 will join the programme in 2026, the £30,000 to £50,000 bracket will join in 2027, while quarterly reporting for incomes between £10,000 and £30,000 is under review.
Yet the Association of Tax Technicians (ATT) said there remains "an enormous amount of work to do" to deliver MTD in a workable and valuable form by 2026.
The Institute of Chartered Accountants in England and Wales (ICAEW) stated it is "extremely concerned" about whether HMRC's latest timetable is achievable and called for "fresh thinking" on MTD ITSA for all businesses - proposing a refocussing of the project on what can "realistically be delivered in 2026", with requirements for businesses to maintain digital records decoupled from a requirement for quarterly updates.
The Chartered Institute of Taxation (CIOT) submission stated the revised timetable remains extremely challenging, citing "major limitations within HMRC", while the Low Incomes Tax Reform Group (LITRG) points out that there are still many practical issues to overcome if MTD is going to move forward for any businesses.
While the overall verdict was unanimous, the various submissions teased out a range of issues that are likely to severely hamper HMRC's efforts to meet its current MTD schedule.
With a project this wide-ranging and complex, there were always going to be problems the project's architects needed to tackle. However, HMRC is yet to revolve the following stumbling blocks:
- The treatment of jointly owned properties
- Accommodating taxpayers with multiple agents
- Providing a coherent definition of what a digital record should look like
- The frequency of updates and whether these can be made cumulative
- The interaction of the MTD reporting period with Basis Period Reform
HMRC officials told MPs that since December 2022 it has been undertaking a series of ‘co-creation' events involving unnamed stakeholders "with the ambition of resolving the most pressing design issues within the coming months".
While welcomed by the accounting profession, ICAEW stated the sessions "should have been started earlier" (the first was not held until the end of March 2023), while BASDA called them "several years late in coming," stating they still don't provide clarity on the exact scope needed to go forward.
Another issue raised consistently in submissions was that of HMRC resourcing.
The Association of Accounting Technicians (AAT) noted that HMRC customer service staff numbers have been cut by 24% in the past five years. According to AAT, this has translated into "unacceptably low" service levels.
"HMRC must properly resource its customer services," said the submission. "AAT members have been increasingly frustrated with delays and business disruption from dealing with HMRC with hours spent waiting on phone lines and chasing letters. This is ultimately hampering progress with adopting MTD as it damages the taxpayer's trust in HMRC."
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