A group of MPs has unveiled a scathing report about the inadequacies of HM Revenue & Customs, with a particular reference to why the authorities are forcing small scale buy to let owners into the Making Tax Digital initiative. 

The Public Accounts Committee of the House of Commons is an all-party group which has issued a report which describes a litany of longstanding concerns over HMRC’s ability to fulfil its most basic remit of collecting tax owed.

The committee is also critical of how HMRC responds to tax avoidance schemes, how it is failing on implementing or realising benefits from the Making Tax Digital and other programmes, and completely lacking “a convincing plan for restoring compliance activity back to pre-pandemic levels”.

The 25 page report devotes a section to Making Tax Digital, the process being introduced by HMRC and which many landlords are being obliged to conform with in the coming months.

The Public Account Committee’s report on this subject reads: 

The benefits of Making Tax Digital to those with simple tax affairs are not clear. 

The requirement for taxpayers to keep tax records and submit quarterly returns to HMRC digitally is a key part of its 10-year modernisation strategy. 

From April 2024, HMRC will extend Making Tax Digital to 4.2m taxpayers with business and/ or property income over £10,000, including small landlords and sole traders, to meet their income tax obligations. 

HMRC considers Making Tax Digital is making tax easier, keeping tax in line with the digital age, making business more productive and will provide better data if it needs to introduce further support schemes like SEISS. 

However, it is far from clear how those taxpayers with the most straightforward tax affairs, such as a retired person with rental income, will benefit from completing quarterly digital self-assessment returns. 

There is also no guarantee that the software they will need to submit returns digitally on will be readily available or easy to use, although HMRC is confident this will be the case. 

We question the value of asking the large number of taxpayers with simple tax affairs to take on additional costs and reporting.

The PAC then says HMRC should explain to it how the introduction of Making Tax Digital will be made easier, and less costly, for taxpayers with the simplest and most straightforward tax affairs.

Overall the report – which obviously extends far beyond the Making Tax Digital programme – will make uncomfortable reading for HMRC.

It warns that HMRC’s “unambitious plans” for recovering a total of £6 billion it estimates it spent incorrectly in Covid-19 support payments – whether through fraud or mistakes – could lead to “government writing off at least £4 billion” of taxpayers’ money. 

The PAC says this “risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud”.

The committee also says that “yet again customer service has collapsed and HMRC’s recovery plans are not clear”, and it is extremely concerned about HMRC’s capacity to clear backlogs while tackling the “avalanche of error and fraud it now faces on the Covid-19 schemes”.

The committee also says HMRC simply doesn’t know why the cost of key tax reliefs has increased, or how much of that is due to abuse.

Dame Meg Hillier MP, chair of the Public Accounts Committee, says: “The PAC is concerned about how long HMRC will be playing catchup to get back to revenue collection levels before the pandemic.

“The level of fraud and error in furlough that employers will get away with is a real concern. What signal does it send when HMRC rolls over on billions of pounds of fraud and error directly related to Covid support packages? With the current parlous state of the public finances we can ill-afford to be so cavalier over so much taxpayers’ money.

“Every taxpayers’ pound lost to a fraudster will lead to honest ordinary people feeling the post-pandemic pinch harder and harder.”

You can read the full report here.