The Public Accounts Committee of the House of Commons made up of an all-party group of MPs has just published a ‘cutting’ report on the failures of the HMRC, including a strong rebuke of its decision to force small scale landlords into having to sign up to its Making Tax Digital scheme/initiative.

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PAC’s report contains a catalogue of longstanding worries over HMRC’s capabilities of actually fulfilling its main role of making sure it collects tax owed.

The report also criticises HMRCs’ lack of action over tax avoidance schemes, its failure on introducing or realising Making Tax Digital benefits and other schemes under its umbrella, and not having  “a convincing plan for restoring compliance activity back to pre-pandemic levels”.

The committee’s 25 page report includes a section focussing on HMRC’s new Making Tax Digital  scheme which will be making it mandatory for many small scale landlords to adopt in the next few months.

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

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.

PAC’s report states the HMRC must fully explain how the incoming tax scheme will be easier to understand and less expensive for those taxpayers with the simplest and most straightforward tax affairs.

Summarising the PAC report, which obviously focusses on other areas besides the new tax scheme will important to taxpayers, but may simply be brushed under the carpet no matter how damning it is of HMRC’s considerable failures.

The report states that HMRC’s “unambitious plans” for attempting to retrieve £6 billion it spent ‘misguidedly’ in Covid-19 support payments, irrespective of whether through fraudulent means or plain stupid mistakes which could almost certainly lead to the “government writing off at least £4 billion” of taxpayers’ money.

The committee states their failure  “risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud”.

It is also highly critical  that “yet again customer service has collapsed and HMRC’s recovery plans are not clear”, and has major concerns over HMRC’s resources being able to clear backlogs whilst taking on the “avalanche of error and fraud it now faces on the Covid-19 schemes”.

PAC is equalling scathing of HMRC’s attitude to and why major tax reliefs have risen and how much is caused by abuse of the system.

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.