The deferral of Making Tax Digital (MTD) for Income Tax Self-Assessment will cost the Treasury over £1.75bn in lost tax
The estimated lost tax revenue was revealed in the Budget documents and is based on HMRC’s calculations of how digital reporting can reduce the level of error and improve tax compliance.
In December, the government delayed the rollout of MTD for income tax with 2026 slated as the earliest date for a staged introduction.
There have been criticisms that there was insufficient consultation about the extension of digital reporting with limited testing of the new software by agents.
The programme’s benefits might have begun to flow more quickly if the government had consulted earlier and worked more closely in partnership with stakeholders, warned the Association of Taxation Technicians (ATT) and Chartered Institute of Taxation (CIOT). They added that it now too late to consult widely on how the government’s objectives can be achieved.
The Budget estimated that the ‘cost’ of the deferral and increase in starting threshold to £50,000 will result in £1.75bn in lost tax for the financial years up to and including 2027-28.
There are questions about the exact calculation of additional revenues, which are based on the premise that the MTD extension would have collected extra tax as a result of better levels of compliance.
Alison Hobbs, chair of the joint CIOT and ATT digitalisation and agent strategy committee, said: ‘The announcement to defer the implementation of MTD for ITSA, and subsequently introduce it in a staged manner, was clearly the correct one.
‘The incredibly limited testing, combined with significant problems still to be resolved, meant that this delay had to happen. However, according to government figures, the cost is clearly substantial.’
The MTD extension was announced, without prior consultation, at the 2015 Autumn Statement and consultation began in 2016.
Hobbs added: ‘While we have spent the last seven years engaging with HMRC on MTD, it started too late in the policy development process. Key decisions, such as who would be in scope, what they need to do, and the implementation timetable were already decided.
‘We could have worked with HMRC to identify options to meet the policy objectives of reducing errors and mistakes and using the opportunities technology provides to make it easier for taxpayers to meet their tax obligations.
‘Instead, the heart of the MTD proposals, ITSA, will first be implemented over 10 years after the initial announcement, with much to do thereafter. Had discussions started in the right place, we might currently be reaping the benefits of digitalisation. It’s not too late to learn this lesson for the future.’
