Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government whether digitally excluded taxpayers will be able to apply for an exemption from Making Tax Digital before April 2026.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
A significant majority of self-employed individuals and landlords have turnover below the VAT threshold, which is currently £90,000. Since 2022, all VAT-registered businesses have been required to use Making Tax Digital (MTD) regardless of whether they are above of below the VAT threshold. The MTD for Income Tax threshold starts at £50,000 from April 2026, reducing to £30,000 in April 2027 and £20,000 in April 2028. This ensures MTD will extend the benefits of digitalisation to many more businesses, helping them to adopt new digital ways of working, improve productivity and growth and get their tax right. This helps address the tax gap for Income Tax Self-Assessment, which is estimated at £8.7bn in 2023-24 and is particularly prevalent amongst the smallest businesses. HMRC has worked extensively with customers, representative bodies and software developers to ensure that MTD works well for businesses of all sizes.
MTD Quarterly updates are not self-assessment tax returns. They are simple summaries of income and expenditure which can be automatically populated through digital records kept by MTD users. HMRC expects quarterly updates to be accurate based on the best available information at the time, but taxpayers do not have to make a declaration of accuracy when these are submitted, and there will not be penalties for inaccurate quarterly updates.
The Government recognises that not everyone is able to interact with HMRC digitally. Taxpayers who are digitally excluded from MTD for Income Tax will be able to apply for an exemption. HMRC will begin operating the exemption process in the coming weeks.
HMRC will publish detailed guidance when the exemption application process opens for digitally excluded taxpayers. This will explain how taxpayers, or someone acting on their behalf, can apply to be exempted from MTD for Income Tax. HMRC will also write to taxpayers to make them aware of the exemptions. There will also be engagement with business and taxpayer representatives to help disseminate this information.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government how Making Tax Digital will reduce the tax gap attributable to rogue traders who intentionally evade tax.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Quarterly updates required by Making Tax Digital (MTD) are not the same as tax returns. They are simple, unadjusted summaries of income and expenditure, acting as a snapshot of quarterly trading activity. They will be populated automatically through software and can be submitted easily. This process has been designed to be simple for users and quick to complete.
Quarterly updates will support taxpayers to get their tax right by ensuring timely and accurate record keeping, enabling tailored digital prompts and to view estimates of their emerging tax liability throughout the tax year, making it easier to submit their end of year return.
MTD is intended to address parts of the tax gap caused by unintentional taxpayer error and failure to take reasonable care. By preventing common taxpayer errors, MTD for income tax helps address the small business Tax Gap, adding £1.95bn to the public finances through to 2029/30.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government how increasing filing obligations through Making Tax Digital from one to five filings per year will reduce the tax gap.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Quarterly updates required by Making Tax Digital (MTD) are not the same as tax returns. They are simple, unadjusted summaries of income and expenditure, acting as a snapshot of quarterly trading activity. They will be populated automatically through software and can be submitted easily. This process has been designed to be simple for users and quick to complete.
Quarterly updates will support taxpayers to get their tax right by ensuring timely and accurate record keeping, enabling tailored digital prompts and to view estimates of their emerging tax liability throughout the tax year, making it easier to submit their end of year return.
MTD is intended to address parts of the tax gap caused by unintentional taxpayer error and failure to take reasonable care. By preventing common taxpayer errors, MTD for income tax helps address the small business Tax Gap, adding £1.95bn to the public finances through to 2029/30.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government, further to the Written Answers by Lord Livermore on 8 July (HL8787 and HL8788), how requiring users to submit quarterly updates of income and expenditure in addition to submitting a tax return will (1) reduce errors, and (2) save time.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Making Tax Digital (MTD) quarterly updates support taxpayers in getting their tax right by ensuring timely and accurate record keeping, enabling tailored digital prompts and allowing taxpayers to see estimates of their emerging tax liability throughout the tax year.
This will help to reduce errors, and the time taxpayers need to spend managing their tax affairs. Software will automatically draw data for the updates from the digital records. With income and expenditure already categorised, the end-of-year return will also become quicker and easier, as all the information will be readily available in the software to submit.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government, further to the Written Answers by Lord Livermore on 8 July (HL8787 and HL8788), what calculations support the statement that Making Tax Digital for Income Tax will generate an expected £1.95 billion of additional tax revenue by 2029–30.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Making Tax Digital (MTD) for Income Tax is expected to generate £1.95 billion in additional tax revenue by 2029–30 by reducing taxpayer errors through digital record-keeping and quarterly updates using MTD-compatible software.
The estimate is the expected reduction in the tax gap due to error and failure to take reasonable care among Self Assessment taxpayers based on the number of taxpayers expected to participate in MTD, and on evidence from evaluation of MTD for VAT.
Additional revenue is also expected from digital prompts to encourage more accurate reporting, with effects estimated using controlled trials.
These calculations have been certified by the Office for Budget Responsibility (OBR).
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government, further to the Written Answers by Lord Livermore on 8 July (HL8787 and HL8788), how introducing Making Tax Digital for smaller taxpayers will help reduce the tax gap.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Making Tax Digital (MTD) helps reduce the estimated £22 billion tax gap across all taxes caused through error and failure to take reasonable care. It does this by requiring closer-to-real-time digital record keeping, underpinned by quarterly updates and submission of the end-of-year tax return using MTD compatible software. MTD for VAT is currently predicted to deliver cumulative additional revenue (ATR) of over £4 billion by 2029-30 by reducing taxpayer errors.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what plans they have to extend the functionality of HMRC’s online personal tax accounts to include Making Tax Digital requirements from April 2026.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Making Tax Digital (MTD) for Income Tax will be rolled out from 2026 to simplify the process by which self-employed individuals and landlords make their annual tax returns. It will also reduce error and help to ensure self-employed individuals and landlords pay the right amount of tax. This in turn will help tackle the tax gap and generate an expected £1.95 billion of additional tax revenue by 2029-30 to fund vital public services.
Businesses that currently use MTD for VAT have reported several benefits including time savings, increased tax confidence, greater accuracy, and improved business operations in comparison to manual processes. Extending MTD for Income Tax will extend these benefits to a further 2.75 million self-employed individuals and landlords
MTD for Income Tax will require users to keep electronic tax records, submit quarterly updates of income and expenditure and submit a Tax Return. Users will need to complete these steps using commercial software. The government is not building functionality to allow MTD users to complete these steps on their online Personal or Business Tax Accounts. However, MTD users will be able to see details of information submitted within software through their Personal or Business Tax Accounts. This includes information about their quarterly updates and estimated tax liability.
The government has worked with the software industry to ensure there are free and low-cost software options available, alongside a wider range of software choices to suit varying needs and budgets. The use of software offers more flexible and tailored ways for users to manage their tax affairs compared to HMRC’s online services.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government why they are extending the Making Tax Digital regime to individual taxpayers from April 2026.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Making Tax Digital (MTD) for Income Tax will be rolled out from 2026 to simplify the process by which self-employed individuals and landlords make their annual tax returns. It will also reduce error and help to ensure self-employed individuals and landlords pay the right amount of tax. This in turn will help tackle the tax gap and generate an expected £1.95 billion of additional tax revenue by 2029-30 to fund vital public services.
Businesses that currently use MTD for VAT have reported several benefits including time savings, increased tax confidence, greater accuracy, and improved business operations in comparison to manual processes. Extending MTD for Income Tax will extend these benefits to a further 2.75 million self-employed individuals and landlords
MTD for Income Tax will require users to keep electronic tax records, submit quarterly updates of income and expenditure and submit a Tax Return. Users will need to complete these steps using commercial software. The government is not building functionality to allow MTD users to complete these steps on their online Personal or Business Tax Accounts. However, MTD users will be able to see details of information submitted within software through their Personal or Business Tax Accounts. This includes information about their quarterly updates and estimated tax liability.
The government has worked with the software industry to ensure there are free and low-cost software options available, alongside a wider range of software choices to suit varying needs and budgets. The use of software offers more flexible and tailored ways for users to manage their tax affairs compared to HMRC’s online services.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the effectiveness of VAT relief on new build properties on increasing house building, and what plans they have to extend VAT relief to the refurbishment of listed buildings.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
To support the construction of new homes, the Government maintains a zero rate of VAT on new-build residential buildings and a reduced rate of VAT of five per cent for residential renovations that meet certain conditions.
To preserve heritage, restorative work carried out on listed buildings previously benefited from a zero rate of VAT. However, this relief was abolished in 2012, as it was primarily used to carry out extension work unnecessary for heritage purposes. The Government has no current plans to reduce the VAT charged on work to maintain and repair listed properties, but keeps all taxes under review.
Asked by: Lord Mackinlay of Richborough (Conservative - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the impact of the proposed ban on issuing new licences to explore oil and gas fields on investment, jobs, tax revenue and the balance of payments.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
Forecasts for oil and gas tax revenues are published by the Office for Budget Responsibility (OBR), which take into account many factors including the sector’s expectations and the Government’s policy at the time. The most recent forecast was published at Autumn Budget 2024 in the Economic and Fiscal Outlook October 2024 [1] . This also includes other economic projections, including in relation to future investment in the oil and gas sector and the UK’s balance of payments.
Future OBR forecasts will consider any changes to policy that may have an impact on investment in the oil and gas sector, oil and gas production or tax revenues from the sector.
1. https://obr.uk/efo/economic-and-fiscal-outlook-october-2024/