Meeting the requirements of Making Tax Digital has cost some businesses and agents more than expected, HMRC has revealed, confirming independent research from ICAEW.
An HMRC review of Making Tax Digital (MTD), announced at Spring Budget 2020 and published on 19 March 2020, acknowledges that some businesses and agents have incurred more costs than expected in transitioning to digital filing.
The conclusion chimes with the results of a recent survey of ICAEW members, which found that practices responding had seen a significant increase in their costs.
The MTD evaluation report, which also recognises the efforts of businesses and agents in making the transition to MTD, can be downloaded in full from gov.uk, along with eight research reports commissioned by HMRC.
While HMRC’s review confirms it is too early to assess the impact MTD will have on the tax gap, it argues that the system has the potential to be an important driver for the adoption of digital technologies. According to HMRC some businesses are already seeing productivity gains and reduced input errors.
However, the review also acknowledges that there were problems with the system, in particular issues with agent services. Such issues have been reported by ICAEW members and been raised with HMRC by the Tax Faculty.
Prior to this evaluation the Tax Faculty and other stakeholders called on HMRC to review the implementation of MTD for VAT before the government decides on the next phases of the system.
The report responds to these calls, stating that HMRC will “continue to discuss and monitor progress with representative bodies and taxpayers, to ensure that future plans for MTD reflect this learning”.
The Tax Faculty welcomes this period of reflection, particularly in in the light of the need to support business during the challenges posed by COVID-19, and has written to the Financial Secretary to the Treasury to recommend that there be no extension of MTD in 2021.