In a new report, the National Audit Office concludes that the implementation of making tax digital (MTD) has been too ambitious and is likely to cost five times its initial budget. Progress with Making Tax Digital looks at HMRC’s original vision for the MTD programme, reviews progress up to 2017 and considers whether the latest plans and timetable are realistic.
MTD is now expected to cost £1.3bn, over £1bn more than the original 2016 budget of £226m. Perhaps more critically, the report notes that previous HMRC forecasts of the associated compliance costs for business had omitted some £1.5bn of up-front costs that businesses would need to incur in adapting their systems and taking extra professional advice. Had these initial costs been taken together with the £900m of ongoing costs to taxpayers over five years, the overall combined cost to government and taxpayers would have exceeded the forecast additional tax revenues (although the MTD cost to benefit ratio does seem to have improved, based on March 2023 revised estimates).
Timelines have been unrealistic, with the report noting that HMRC had failed to assess the scale of work required from the outset. Although MTD for VAT was introduced as planned between 2019 and 2022, this was at the expense of MTD for income tax self-assessment (ITSA) with HMRC recognising in 2017 that it would not be possible to implement the income tax service by 2020 as originally envisaged. Practical difficulties were exposed by the MTD for ITSA pilot which, instead of involving 15,500 businesses, ended up with only 15 participants.
Repeated delays to the implementation timetable have ‘undermined the programme’s credibility and increased its costs,’ said Gareth Davies, head of the NAO. ‘They put at risk the support of taxpayers and delivery partners, including those who are essential to the programme succeeding.’
The CIOT goes further, saying that MTD is ‘out of control, with spiralling costs, unrealistic timescales, and questionable benefits’.
Alison Kerrey, chair of the joint CIOT and ATT Digitalisation and Agent Services Committee, said: ‘To announce a project as substantial as MTD, with significant impacts for businesses, agents, software companies and HMRC themselves, without being able to point to a proper business case beforehand, simply beggars belief.
‘And then, just three months ago, to omit such massive sums from the cost:benefit analysis, is equally remarkable. You wonder how HMRC would react, and the behaviour they would infer, if a taxpayer had made a similar omission from their returns.’
Moving to a modern digital system is of course widely welcomed in principle by most stakeholders and, although beset by difficulties, the report does also include some more encouraging observations. MTD for VAT cost around £295m (some £70m more than the total original budget for the entire programme) but HMRC research suggests it generated additional VAT revenue of up to £195m in 2019/20. In its 2023 forecasts, HMRC estimates that MTD could bring in an extra £3.9bn in tax revenues from MTD for VAT and ITSA by 2033/34 from reducing taxpayer error.
HMRC’s latest MTD implementation timelines
April 2019: VAT digital record-keeping introduced for large businesses
April 2022: VAT record-keeping requirement extended to smaller businesses
April 2026: MTD for income tax self-assessment to be introduced for self-employed businesses and landlords with income over £50,000
April 2027: MTD for ITSA to be extended to those with income over £30,000
For remaining businesses within income tax (including general partnerships), and for MTD for corporation tax, dates have not been announced.
In a new report, the National Audit Office concludes that the implementation of making tax digital (MTD) has been too ambitious and is likely to cost five times its initial budget. Progress with Making Tax Digital looks at HMRC’s original vision for the MTD programme, reviews progress up to 2017 and considers whether the latest plans and timetable are realistic.
MTD is now expected to cost £1.3bn, over £1bn more than the original 2016 budget of £226m. Perhaps more critically, the report notes that previous HMRC forecasts of the associated compliance costs for business had omitted some £1.5bn of up-front costs that businesses would need to incur in adapting their systems and taking extra professional advice. Had these initial costs been taken together with the £900m of ongoing costs to taxpayers over five years, the overall combined cost to government and taxpayers would have exceeded the forecast additional tax revenues (although the MTD cost to benefit ratio does seem to have improved, based on March 2023 revised estimates).
Timelines have been unrealistic, with the report noting that HMRC had failed to assess the scale of work required from the outset. Although MTD for VAT was introduced as planned between 2019 and 2022, this was at the expense of MTD for income tax self-assessment (ITSA) with HMRC recognising in 2017 that it would not be possible to implement the income tax service by 2020 as originally envisaged. Practical difficulties were exposed by the MTD for ITSA pilot which, instead of involving 15,500 businesses, ended up with only 15 participants.
Repeated delays to the implementation timetable have ‘undermined the programme’s credibility and increased its costs,’ said Gareth Davies, head of the NAO. ‘They put at risk the support of taxpayers and delivery partners, including those who are essential to the programme succeeding.’
The CIOT goes further, saying that MTD is ‘out of control, with spiralling costs, unrealistic timescales, and questionable benefits’.
Alison Kerrey, chair of the joint CIOT and ATT Digitalisation and Agent Services Committee, said: ‘To announce a project as substantial as MTD, with significant impacts for businesses, agents, software companies and HMRC themselves, without being able to point to a proper business case beforehand, simply beggars belief.
‘And then, just three months ago, to omit such massive sums from the cost:benefit analysis, is equally remarkable. You wonder how HMRC would react, and the behaviour they would infer, if a taxpayer had made a similar omission from their returns.’
Moving to a modern digital system is of course widely welcomed in principle by most stakeholders and, although beset by difficulties, the report does also include some more encouraging observations. MTD for VAT cost around £295m (some £70m more than the total original budget for the entire programme) but HMRC research suggests it generated additional VAT revenue of up to £195m in 2019/20. In its 2023 forecasts, HMRC estimates that MTD could bring in an extra £3.9bn in tax revenues from MTD for VAT and ITSA by 2033/34 from reducing taxpayer error.
HMRC’s latest MTD implementation timelines
April 2019: VAT digital record-keeping introduced for large businesses
April 2022: VAT record-keeping requirement extended to smaller businesses
April 2026: MTD for income tax self-assessment to be introduced for self-employed businesses and landlords with income over £50,000
April 2027: MTD for ITSA to be extended to those with income over £30,000
For remaining businesses within income tax (including general partnerships), and for MTD for corporation tax, dates have not been announced.
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