Treasury Committee: Minister confident on 2026 MTD plans

HMRC leadership appointments

The chair of the committee, Dame Meg Hillier, questioned the minister about the motivation behind his appointment as chair of the board of HMRC. The minister explained that he wanted to take on the role in order “to be hands on, to make sure we are delivering our agenda effectively and at pace”. 

The chair pressed him on what he is doing as chair that his predecessor could not do. “I wanted to ensure that my priorities were transmitted as directly as possible,” he responded. He said his impression was that ministers have in recent years been “more arms length” with HMRC. 

The chair also explored issues around accountability for HMRC. If something goes wrong at HMRC, the minister is ‘putting his neck on the block’ twice over, she suggested.

Is HMRC still a non-ministerial department, she wondered. We haven’t actually changed the law so the relationship between myself and the commissioners hasn’t changed, the minister said. 

Some people might be worried about a politician being in charge of HMRC putting tax confidentiality at risk, suggested the chair. The minister said there was no risk whatsoever of taxpayer confidentiality being breached as a result of him chairing the board.

The chair also questioned the minister briefly about the appointment of the new HMRC chief executive. The minister said his involvement had been a ‘fireside chat’ with shortlisted candidates, with a commissioner in the room too. His reactions were fed back to the Civil Service Commissioner, Gisela Stuart, but he was then separate from the formal process until a recommendation for an appointment came to him (in his capacity as minister rather than as chair of the board). The Prime Minister is, formally, the ultimate decision-maker.

Making tax digital

New committee member John Grady (Labour) asked the minister whether he saw enabling self service as the major benefit of Making Tax Digital (MTD). The minister said it was one benefit but the next milestone MTD for ITSA, coming in in April 2026, was really important in terms of improving the quality of record keeping and tackling the tax gap.

The minister spoke about the importance of the free software option for people not earning that much, following an agreement reached with Sage. He said he was grateful to them and there was a commitment to launch the free product ahead of April 2026.

Grady asked about burdens on business from MTD, noting the NAO had found that HMRC had not properly accounted for that in the cost-benefit analysis. The minister said the government will ‘learn as we go along’, getting feedback from the initial introduction at the £50,000 threshold so that introductions for those at £30,000 and eventually (though no date has yet been set) £20,000 can be improved.

The minister told MPs that he didn’t back the April 2026 target for MTD for ITSA straight away as he wanted to ‘really interrogate’ the timetable. He had done this and now stands behind it, he said.

HMRC’s digital transformation

Responding to former Treasury minister John Glen (Con), the minister, James Murray, said he wants to see the number of people who are using HMRC digital services and are confident to do so increase. “Part of the process of making sure HMRC is and remains a digital-first organisation is changing the culture of how HMRC responds to challenges, so, rather than there being big programmes developed over years and years, and then implemented, and then you sit back for a few years while the next one comes along, being more iterative about this, looking at the opportunities, such as the AI offer, and doing that on a more test-and-learn basis.”

The chair, Dame Meg Hillier (Lab), pushed back on this, saying that HMRC’s digital transformation programme had had some testing and learning. She suggested Murray was actually saying this was ‘too slow’.

Murray disagreed. It was, he said, about “improvements you can make incrementally. You can test out improvements and then spread them across the organisation. That kind of culture is one that we can get a lot of benefit from.”

HMRC staffing

Yuan Yang (Lab) asked the minister if he felt HMRC has been under resourced “in terms of the amount of staff collecting tax to close the tax gap in the past? How far do you think we are from the optimal size of staffing of HMRC?”

On under-resourcing, Murray replied that, “given the fact that we can increase the staff by the level that we have set out and get this extra tax revenue coming in, it would seem that the previous government were not doing that. It is something that we have chosen to do. There was definitely extra capacity there to bring in extra additional tax revenue and we can do that through these extra staff.”

On HMRC’s optimal size, Murray reflected that diminishing returns to investment kick in at some point when adding staff. He is “very keen” to understand where that point is. “We set ourselves very ambitious targets of 5,000 extra compliance staff and 1,800 debt staff at the moment, but I am very keen to keep that under good review and see whether there are opportunities to consider whether that is the optimal number and what else can be done.” He added that in terms of ‘onboarding’, “there is sometimes a question about the rate, rather than just the absolute number. As you bring more people on board, that then takes existing staff away. You have to train them.”

Customer service

Dame Harriett Baldwin (Con) asked about HMRC helpline performance, noting the target that 85% of customers who want to speak to an adviser get to speak to an adviser. Dan York-Smith, from the Treasury, said that in October the performance was 85.4% and in November it was 84.7%, “so essentially at target”. 

In the course of questioning, York-Smith told Baldwin that HMRC’s app has been used 112 million times by over 5 million unique users over the last 12 months.

The minister assured Baldwin that: “We are certainly not planning to turn the helpline off.” He then spoke about the need to reassure people: “to see whether we can get to a position where people… do not need to call to reassure themselves. Where possible, if they can be reassured more automatically, without having to make that phone call, that is a better position for them to be in and for us in terms of HMRC.”

Is the number of helpline staff declining? York-Smith explained that HMRC was given an additional £51 million this year to deliver its service standards, but neither he nor the minister could provide the current level of staffing of the customer services group within HMRC. Baldwin asked them to follow up with that information and what the forecast is for the period ahead.

Baldwin then asked how HMRC are using artificial intelligence to deliver a better service level for taxpayers. Murray said AI has a big role, though some of this relies on modernising HMRC’s IT infrastructure. “[F]or instance, call summarisation, so having AI to give call summaries so that, when people call up and have a call, it is recorded through an automatic summary and then, when they call back, it is easier for the call operative to remind themselves what they last discussed. That kind of thing can be hugely helpful and I have seen organisations in the private sector that use this routinely. There are also opportunities for using AI for developing, potentially, even some simple correspondence or subsequent actions to help assist individual operatives to do that.”

Tax gap

Rachel Blake (Lab) asked about closing the tax gap. How much further can HMRC go, she asked.

Murray reflected on the different elements of the tax gap and the actions the government are taking to address them (compliance staff, investment in debt collection, IT systems and infrastructure, policy change). He focused in particular on people making errors or failing to take reasonable care, which is close to half of the tax gap. Digitising the service and making it more automated wherever possible can help, he suggested.

Blake noted that Jim Harra, HMRC’s permanent secretary, had told the committee that HMRC was confident they would achieve the target of £275 million additional tax revenue for 2024-25. She asked if the minister could update her on progress towards this.

The minister explained that the £275 million breaks down into two parts. £150 million is the extra revenue that HMRC expect to be collected in February and March this year as a result of keeping on debt staff who are currently employed by HMRC but were previously going to stop being employed at the end of January. The £125 million relates to further staff (about 330 of them) who are going to be retained from April 2025, when they were going to leave, and to some of the money that they are going to collect in 2025-26 and 2026-27, which is then reallocated (in line with accounting rules) to 2024-25. 

These anticipated revenue figures, and figures for future years, are based on what members of staff at that level would typically generate, the minister explained. He was reluctant to make a prediction of how far the tax gap could be reduced.

Business rates

Bobby Dean (Lib Dem) questioned the minister about the future of business rates . He noted that the Labour manifesto talked about replacing business rates but the recent Transforming Business Rates discussion paper talked about their reform. “Are we just talking about rates adjustments and changes to reliefs, or are we talking about fundamentally introducing a new system that is better suited for businesses?” he asked.

The minister said the scope of the government’s ambitions was set out in the paper referred to. He set out some of the changes currently being legislated, such as lower multipliers for retail, hospitality and leisure premises, and said that people “are still very welcome to send in written contributions now through until the end of the consultation period in March, and then we will set out our update to that in due course.”

Dean pressed him on the extent of the government’s business rates ambitions: “Are you going to have a new system this Parliament?” “Certainly our ambition is to keep reforming the system over the course of this Parliament,” replied the minister.

“Are we going to see iterative changes as each Budget comes along, or are you going to unveil a major package of reform at some point,” Dean persisted. The minister said he did not want to prejudge the outcome of the consultation. Might the government decide to replace business rates with something closer to a commercial land value tax, if that was the view that came out of responses? “The fundamental principle of having a property tax for businesses is one that we will maintain,” said Murray. He said businesses were not keen on “tearing up the system and starting something totally different. They would prefer to see step by step change”.

Dean suggested an alternative system might be able to get to a place “where you did not really have to keep going through the process of valuing and revaluing”. “The valuation of properties is really the foundation of how business rates are calculated,” said Murray, before pivoting to talk about how improved IT infrastructure can allow the government to do things more efficiently in the future, in addition to merging the Valuation Office Agency board with the HMRC board. He confirmed that any reforms are expected be revenue neutral.

Finally on this area, Dean said he had heard reports that the government’s changes “could mean that some of the larger chain stores stand to benefit from this change in relative terms, more than the small businesses. Say a huge Starbucks chain that occupy lots of smaller units versus a small coffee chain.” He asked the minister whether he was concerned about this. Murray said the aim of the changes is to support high streets, “and small independent businesses are a crucial part of the high street, but so are anchor stores, which can sometimes be part of a larger chain. A successful high street has a mix of both.”

Tax and growth

Jeevun Sandher (Lab) asked whether the government are considering how to raise revenue in the most growth friendly way possible, mentioning the non-dom changes? The minister said that the government “wanted to implement the non dom changes to help fix the finances in as fair as possible a way, but remaining internationally competitive and having a new regime that is internationally competitive was crucial for us too”.

Dan York-Smith set out some of the analysis tools policy-makers can use. “An example of a recent change is full expensing. That was one that it judged to have a significant impact on business investment, which would affect growth in the long term. For lots of other smaller tax measures, it is much more the microeconomic and behavioural responses that are captured because they are not of sufficient scale.”

Chris Coghlan (Lib Dem) asked for examples of proposals to reform the tax code to boost economic growth, rather than to raise revenue. Murray pointed to the corporate tax roadmap. “One thing that businesses said to me when we were in opposition as well as in government is that having stability, certainty and predictability is crucial for investment decisions.”

“Do you think that the private sector will prefer lower rates of tax or that stability?” asked Coghlan. Murray said he was sure businesses would want the tax burden to be lower. However, in the context of a difficult fiscal situation, providing stability “is a benefit to businesses taking investment decisions”.

Coghlan asked about allowing full expensing of “intellectual property transactions, non-R&D ones, because that incentivises companies to import existing innovation and has a faster pay-off than R&D. Is that something that you have considered?” No, said Murray, but he said it was an interesting point and noted that the government keep all elements of tax policy under review. 

Other areas

The chair asked the minister about the government’s plans for regulation of the tax advice market. The minister pointed to plans for mandatory registration of tax advisers who interact with HMRC, describing this as ‘a floor’. He did not provide any further information, saying it would all be in a consultation to be published in the spring.

Lola McEvoy (Lab) asked about workers, often low-paid, who get missed wages in a lump sum, are taxed at a high rate and suffer delays in getting a refund. Murray said this was “a really important point”. Improving HMRC’s digital offer could free up the time of the people who work in customer services to help people with more complicated cases such as these, he hoped. 

McEvoy also asked about digital exclusion, noting that a report in January 2024 said that five million employed people cannot complete essential digital work tasks. Murray acknowledged that “any digital-first strategy has to be mindful of digital exclusion, because we are not like another company where someone can go to an alternative company.” He did not think this meant government should stop pushing people generally to interact online, but, “[f]or those who are genuinely excluded, who really cannot use it for whatever reason, we need to make sure that the services are there.”

Is HMRC adequately protected against cyber-attacks, asked Dame Siobhain McDonagh, noting the problems that had been caused by an attack on the Transport for London website. Murray sought to assure her that “the right investment and the right improvements are being made… to protect against cyber-attacks.” However, “I do not think that anyone in the world can put their hand on their heart and say that it will never happen.” 

Yuan Yang asked about council tax. “There are no plans to reform council tax,” said Murray. Asked about inconsistencies between banding of similar properties he explained there is a challenge process for individuals. 

Rachel Blake asked anti-money laundering. “The funding [for this] is ringfenced because it is fee funded,” explained York-Smith. “If HMRC were to identify there was a shortfall, I would expect it to advise the minister about that and then for ministers to take a decision about whether they wanted to respond to that in terms of fee levels and so on.” Asked about the potential ‘money laundering gap’ and how many people might be breaching the rules Murray said he would get back to her.

Full transcript here