Making Tax Digital (MTD) and Making Accounts Digital (MAD)
The PAC identified areas of concern in its annual examination of HMRC, including customer service; the tax gap; tax reliefs; and multinationals’ tax affairs. The annual test of HMRC’s performance provided recommendations to safeguard taxpayers’ interest.
Digitising the Tax System (MTD)
“HMRC is staking a great deal on the success of its plans to digitise the tax system, but once again it lacks an adequate plan if demand for its call centres does not reduce as quickly as it hopes,” stated the PAC in its recommendations.
The Making Tax Digital (MTD) plan, which would see quarterly reporting to the taxman, “must” meet the challenges of cutting spending, restructuring its business, dealing with Brexit, relocating staff, and replacing a major IT contract. Also, HMRC must agree on a contingency plan with HM Treasury in case its projections are inaccurate. Meg Hillier, MP, chair of the PAC, added: “Contingency planning should not be an optional extra.” Inherrant in Making Tax Digital (MTD) is making Accounts Digital (MAD) as one will not work without the other. Making Accounts Digital (MAD) poses the most difficulty for sole traders, partnerships and other small businesses.
It was recommended that, by March 2017, HMRC should have a credible plan to make savings without causing further failure in customer service.
Hillier said: “HMRC plays a vital role, it is disconcerting that again we must raise concerns about customer service and transparency in the tax system. The lack of a convincing fall-back plan to safeguard service remains a looming threat.” Her comments refer to mistakes HMRC made two years ago when the number of staff were reduced in the personal tax service, resulting in a “disastrous decline” in customer service.
Unclear Tax Gap
The way HMRC has measured the tax gap, and its impact of the efforts to close it, is “unclear”, said the PAC. The figures have fluctuated year-to-year to 6.5% in 2014/15 from 8.3% in 2005/6. HMRC’s annual report doesn’t set out what impact its compliance work has on reducing the tax gap.
The taxman should report annually on the effect its work generating compliance yield is having on reducing the tax gap, including the assessment of the accuracy of compliance estimation, said the committee.
The PAC reiterated the call for greater transparency in the tax affairs of large multinationals “to increase the pressure on them to pay their fair share of tax”, urging a debate for country-by-country reporting. HMRC will soon receive this country-by-country reporting in confidence, but will not increase transparency over the tax affairs of those companies.
Tax reliefs are still not sufficiently visible to support public debate and scrutiny, an analysis of reliefs and costs are called for in HMRC’s annual report. The examination recommends that HMRC should include an analysis of tax reliefs and their costs in its annual report to improve accountability about the areas where government has chosen not to collect tax.
The committee will be hosting a global summit on tax transparency on 9 December.