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My honourable friend the Exchequer Secretary to the Treasury (Dan Tomlinson) has today made the following Written Ministerial Statement.
Today the government sets out further reforms to simplify and modernise the tax and customs system, building on the commitment first made in the HMRC Transformation Roadmap published in July 2025 and...
My honourable friend the Exchequer Secretary to the Treasury (Dan Tomlinson) has today made the following Written Ministerial Statement.
Today the government sets out further reforms to simplify and modernise the tax and customs system, building on the commitment first made in the HMRC Transformation Roadmap published in July 2025 and...
To ask His Majesty's Government how many letters about the requirement to file quarterly Making Tax Digital returns have been sent out in error to taxpayers whose qualifying income is below the initial £50,000 threshold; and if so, what has been the mailing and administration cost of this.
To ask His Majesty's Government how many letters about the requirement to file quarterly Making Tax Digital returns have been sent out in error to taxpayers whose qualifying income is below the initial £50,000 threshold; and if so, what has been the mailing and administration cost of this.
As part of the Making Tax Digital (MTD) for Income Tax awareness campaign, HMRC issued letters to customers with qualifying income over £50,000. These customers were identified based upon the latest information held by HMRC at that time.
While some customers may subsequently have fallen below the threshold due to amendments to their 2024/25 tax returns made after letters were scheduled, HMRC is satisfied that the correct customers have been contacted overall and does not consider that any significant additional mailing or administration costs were incurred.
To ask His Majesty's Government what assessment they have made of the readiness of the self-employed to submit quarterly returns through Making Tax Digital.
To ask His Majesty's Government what assessment they have made of the readiness of the self-employed to submit quarterly returns through Making Tax Digital.
The government is undertaking a range of activities to ensure those needing to use Making Tax Digital (MTD) for Income Tax from April 2026 are ready and able to do so successfully.
This includes media campaigns, awareness letters, developing guidance, and working with the software industry to ensure a broad range of MTD‑compatible products is available, including free options.
MTD quarterly updates are not like making a tax return each quarter. Software will manage much of the process, creating simple summaries of income and expenses from the taxpayer’s digital records ready for submission.
Information provided within the quarterly updates will be carried forward to the tax return, helping to reduce errors and make the end of year process faster and easier.
To ask His Majesty's Government whether they plan to issue fines and penalties for inaccurate quarterly Making Tax Digital returns.
To ask His Majesty's Government whether they plan to issue fines and penalties for inaccurate quarterly Making Tax Digital returns.
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.
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.
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.
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.
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.
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.
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.
My Lords, from April 2026, Making Tax Digital for income tax will be phased in for unincorporated businesses, self-employed individuals and landlords, starting with those with income over £50,000. This will place small businesses on a more digital footing and should act as a catalyst for greater adoption of new digital technologies, unlocking the significant productivity benefits associated with digitalisation.
My Lords, from April 2026, Making Tax Digital for income tax will be phased in for unincorporated businesses, self-employed individuals and landlords, starting with those with income over £50,000. This will place small businesses on a more digital footing and should act as a catalyst for greater adoption of new digital technologies, unlocking the significant productivity benefits associated with digitalisation.
To ask His Majesty’s Government what plans they have to use the rollout of Making Tax Digital as a strategic entry point to encourage wider adoption of digital tools among small businesses.
I am grateful to my noble friend for his question. HMRC has taken a range of steps to ensure that the adoption costs of Making Tax Digital are kept to a minimum, including working with industry to ensure that there is free and low-cost software available where necessary. The use of Making Tax Digital should bring significant benefits by increasing accuracy, reducing the time it takes to complete tax returns, and therefore increasing productivity. The rollout of Making Tax Digital encourages taxpayers
to adopt digital solutions. For example, of those businesses already using Making Tax Digital for VAT, one-third have used the software for other business processes. More broadly, the Government are actively promoting digital technology adoption for small businesses, which is key to unlocking productivity and growth, and helping firms reduce administrative burdens. In our small business plan, we accepted all 10 recommendations from the industry-led Digital Adoption Taskforce.
I am grateful to my noble friend for his question. HMRC has taken a range of steps to ensure that the adoption costs of Making Tax Digital are kept to a minimum, including working with industry to ensure that there is free and low-cost software available where necessary. The use of Making Tax Digital should bring significant benefits by increasing accuracy, reducing the time it takes to complete tax returns, and therefore increasing productivity. The rollout of Making Tax Digital encourages taxpayers
to adopt digital solutions. For example, of those businesses already using Making Tax Digital for VAT, one-third have used the software for other business processes. More broadly, the Government are actively promoting digital technology adoption for small businesses, which is key to unlocking productivity and growth, and helping firms reduce administrative burdens. In our small business plan, we accepted all 10 recommendations from the industry-led Digital Adoption Taskforce.
I thank my noble friend the Minister for the helpful Answer. Given that Making Tax Digital has significantly increased the cost of compliance for small businesses through mandatory software and subscriptions, what steps are the Government taking to mitigate those burdens? Might this rollout be the right moment to consider an accounting software switch service modelled on the banking version, and to require that such software includes prompts to highlight underused tax reliefs as a core feature, rather than an added cost?
If I may, I disagree with the premise of the noble Baroness’s question. Making Tax Digital is about increasing productivity for businesses and helping HMRC close the tax gap, which I am sure the noble Baroness would agree should be a priority. There are clear benefits of Making Tax Digital, such as productivity gains to improve business operations, easier and faster tax returns by promoting digital record-keeping, and greater accuracy by reducing errors for tracking paper records. There is a substantial tax gap, and Making Tax Digital will reduce that by nearly £6 billion—some £4 billion for VAT and £1.95 billion for income tax. By doing that, and enabling HMRC to have the correct resources, it is able to direct resources where they are most needed, which addresses the point the noble Baroness was making.
If I may, I disagree with the premise of the noble Baroness’s question. Making Tax Digital is about increasing productivity for businesses and helping HMRC close the tax gap, which I am sure the noble Baroness would agree should be a priority. There are clear benefits of Making Tax Digital, such as productivity gains to improve business operations, easier and faster tax returns by promoting digital record-keeping, and greater accuracy by reducing errors for tracking paper records. There is a substantial tax gap, and Making Tax Digital will reduce that by nearly £6 billion—some £4 billion for VAT and £1.95 billion for income tax. By doing that, and enabling HMRC to have the correct resources, it is able to direct resources where they are most needed, which addresses the point the noble Baroness was making.
My Lords, Making Tax Digital is not targeted at upskilling self-employed people and landlords; it is about cutting costs at HMRC. The requirements have led to a surge in calls to HMRC for guidance, but over half a million calls went unhandled in January, and the same in February, the last months for which I have numbers. How is this being handled, given that people who fail to comply face steep fines and penalties, and that when they rely on the internet they are at risk of being scammed?
Yes.
Yes.
My Lords, Making Tax Digital is not targeted at upskilling self-employed people and landlords; it is about cutting costs at HMRC. The requirements have led to a surge in calls to HMRC for guidance, but over half a million calls went unhandled in January, and the same in February, the last months for which I have numbers. How is this being handled, given that people who fail to comply face steep fines and penalties, and that when they rely on the internet they are at risk of being scammed?
It is not for me to comment on the tax affairs of any one individual.
It is not for me to comment on the tax affairs of any one individual.
That was a good answer. I know that my noble friend the Minister is very diplomatic. But in view of the fact that there is huge controversy over the tax affairs of Mr Nigel Farage in relation to his house in Clacton and the huge amount of money that he gets from various sources, including GB News, is it not about time that the Government looked at asking Members of the other House to have their tax affairs made public?
I am grateful to the noble Lord for his question. I of course remember my time on the Economic Affairs Committee, and I was privileged to serve when he was the chair of that committee. We produced many high-quality reports. I do not think I was on the committee at the time of the report that the noble Lord refers to, but I fully appreciate that there are costs to business of doing this—I think the recurring cost is estimated to be, on average, £110 annually. It is important to say that HMRC has worked with industry to ensure that a range of software is available, including free and low-cost software, and of course those costs do not take into account the benefits. There are important productivity and time-saving benefits.
As regards Making Tax Digital for VAT, HMRC has carried out a detailed evaluation of the impact of that, which shows that two-thirds of businesses report time-saving benefits. Of businesses that were using digital accounting software for the first time, 80% reported significant benefits, a quarter reported improved productivity and one-third had used Making Tax Digital software for other business processes. At a time when productivity is such a challenge—an issue that we frequently discuss in this House—and when small businesses make up such a large part of the economy, if we can see two-thirds of small businesses making significant productivity gains, that is a benefit worth having.
I am grateful to the noble Lord for his question. I of course remember my time on the Economic Affairs Committee, and I was privileged to serve when he was the chair of that committee. We produced many high-quality reports. I do not think I was on the committee at the time of the report that the noble Lord refers to, but I fully appreciate that there are costs to business of doing this—I think the recurring cost is estimated to be, on average, £110 annually. It is important to say that HMRC has worked with industry to ensure that a range of software is available, including free and low-cost software, and of course those costs do not take into account the benefits. There are important productivity and time-saving benefits.
As regards Making Tax Digital for VAT, HMRC has carried out a detailed evaluation of the impact of that, which shows that two-thirds of businesses report time-saving benefits. Of businesses that were using digital accounting software for the first time, 80% reported significant benefits, a quarter reported improved productivity and one-third had used Making Tax Digital software for other business processes. At a time when productivity is such a challenge—an issue that we frequently discuss in this House—and when small businesses make up such a large part of the economy, if we can see two-thirds of small businesses making significant productivity gains, that is a benefit worth having.
Does the Minister recall his time on the Economic Affairs Committee and the report which was produced—I am not sure whether he was still on the committee at that time—on Making Tax Digital? It welcomed the move but thought it was important to take account of the burdens placed on small businesses and the costs that were involved. Surely at a time when the economy is, shall we say, not exactly performing as he might hope,
might it not be better to look at this again, with a view to the levels of fines and the speed with which it is being implemented? There was considerable evidence then that HMRC was simply contracting out its job of collecting taxes to people who were trying to run businesses in difficult times. Surely that is not acceptable.
I reassure the noble Lord that I absolutely understand that. I recently answered a Written Question on this exact point, so I am more than happy to share with the noble Lord the Answer to that Question.
I reassure the noble Lord that I absolutely understand that. I recently answered a Written Question on this exact point, so I am more than happy to share with the noble Lord the Answer to that Question.
My Lords, I want to go back to the question from the noble Baroness, Lady Kramer, about helplines. I have to say that, for me—I declare my interest as a small farmer with a small business that wants to do things online—the helpline is not working at the moment, and we heard the numbers that show that it is not working. The most important thing is that that is understood and actions are taking place to make the helpline work, because the digital system will work really well as long as the helpline works too.
My noble friend makes an important point; the tax gap is a significant issue. Small businesses account for some 60% of that tax gap, much of which comes from unintended errors.
One of the big advantages of Making Tax Digital is having more frequent reporting, and therefore there are far fewer errors. There is also the pre-population of end-of-year tax returns, which again reduces errors. If we can reduce some of those errors, we can reduce quite a significant part of the tax gap.
My noble friend makes an important point; the tax gap is a significant issue. Small businesses account for some 60% of that tax gap, much of which comes from unintended errors.
One of the big advantages of Making Tax Digital is having more frequent reporting, and therefore there are far fewer errors. There is also the pre-population of end-of-year tax returns, which again reduces errors. If we can reduce some of those errors, we can reduce quite a significant part of the tax gap.
My Lords, does the Minister agree that everyone who pays PAYE has to pay their fair share of tax, but an awful lot of people do not pay their fair share of tax? Is not the use of technology one way in which we can make sure that they make their contribution?
It may surprise the noble Baroness to hear that I absolutely agree. As part of our regulation action plan, we committed to reducing the regulatory burden on businesses by 25%. We must have a benchmark from which we reduce that burden. We are engaged in doing that, and, as I said, I completely agree with the noble Baroness.
It may surprise the noble Baroness to hear that I absolutely agree. As part of our regulation action plan, we committed to reducing the regulatory burden on businesses by 25%. We must have a benchmark from which we reduce that burden. We are engaged in doing that, and, as I said, I completely agree with the noble Baroness.
My Lords, in the Government’s plan for SMEs, Backing Your Business, they claim that they are prioritising growth and productivity potential—good news. However, in a Written Answer last week to the noble Baroness, Lady Maclean of Redditch, the Government revealed that they have no idea of the level of cumulative administrative costs of regulation for small business. Does the Minister agree that before his Government impose yet more onerous regulations on small businesses, such as through the Employment Rights Bill, they should find out the existing costs of their regulatory onslaughts and do something about them?
We have an extensive growth agenda, not least in the Planning and Infrastructure Bill that we talked about yesterday, and I hope all noble Lords will help that to move swiftly through the House.
We have an extensive growth agenda, not least in the Planning and Infrastructure Bill that we talked about yesterday, and I hope all noble Lords will help that to move swiftly through the House.
On the shadow Minister’s point about the impact assessment, the Government’s own impact assessment of the Employment Rights Bill puts the costs at £5 billion extra. How is that going to help the Government’s growth agenda?
To ask His Majesty’s Government what plans they have to use the rollout of Making Tax Digital as a strategic entry point to encourage wider adoption of digital tools among small businesses.
To ask His Majesty’s Government what plans they have to use the rollout of Making Tax Digital as a strategic entry point to encourage wider adoption of digital tools among small businesses.
My Lords, from April 2026, Making Tax Digital for income tax will be phased in for unincorporated businesses, self-employed individuals and landlords, starting with those with income over £50,000. This will place small businesses on a more digital footing and should act as a catalyst for greater adoption of new digital technologies, unlocking the significant productivity benefits associated with digitalisation.
To ask His Majesty's Government what are the benefits to HMRC and to affected taxpayers of requiring sole traders and landlords to quadruple the frequency and associated costs of their submissions to HMRC from annually to quarterly, starting in April 2026.
To ask His Majesty's Government what are the benefits to HMRC and to affected taxpayers of requiring sole traders and landlords to quadruple the frequency and associated costs of their submissions to HMRC from annually to quarterly, starting in April 2026.
Making Tax Digital (MTD) for Income Tax quarterly updates are not the same as full tax returns. They are simple summaries of income and expenses. Software will automatically draw data from a taxpayer’s digital records, and, where these are up to date, the updates will be quick and easy to submit.
Quarterly updates will reduce errors by moving record-keeping closer to real time underpinning the £1.95bn of Additional Tax Revenue that MTD for Income Tax is expected to generate by 2029/30.
They also enable estimates of tax liability as well as nudges and prompts to support users to get their tax right. With records captured digitally in software, preparing the end-of-year return should be more straightforward, as the information needed is already available.
My honourable friend the Exchequer Secretary to the Treasury (James Murray) has today made the following Written Ministerial Statement.
At Autumn Budget 2024 and Spring Statement 2025, the government committed to bring forward a package of measures in Spring 2025 aimed at simplifying the tax and customs system to help deliver...
My honourable friend the Exchequer Secretary to the Treasury (James Murray) has today made the following Written Ministerial Statement.
At Autumn Budget 2024 and Spring Statement 2025, the government committed to bring forward a package of measures in Spring 2025 aimed at simplifying the tax and customs system to help deliver...
To ask His Majesty's Government what steps they are taking to encourage people to complete their self-assessment tax return forms on time.
To ask His Majesty's Government what steps they are taking to encourage people to complete their self-assessment tax return forms on time.
HMRC runs a comprehensive, integrated communications campaign to support Self Assessment customers in completing their tax returns accurately and on time. This campaign includes direct communications such as emails, letters, and text messages; social media; press and radio coverage; informative videos and webinars; stakeholder engagement; and targeted paid marketing activities.