HMRC digital tax transformation to cost £1bn more
HMRC's digital tax transformation plan failed to properly factor in the up front costs to millions of taxpayers and will cost about £1bn more than originally slated.
The scheme is set to cost £1.3bn — five times more than originally forecast when it was first announced in 2016 (in real terms), according to a new report by the National Audit Office (NAO).
The tax office omitted significant costs to customers from key business case documents which seek approval for further funding, the Progress with Making Tax Digital report said.
The programme was designed to modernise HMRC’s systems for three business taxes — VAT, income tax self assessment and corporation tax — and require business taxpayers to keep and submit quarterly digital tax records. HMRC also intended to move its tax systems and records onto a modern tax management platform by 2020.
In May 2022, HMRC forecast total net ongoing costs to taxpayers of about £900m over five years to comply with the Making Tax Digital (MTD) policy.
However, the cost of obtaining tax advice and the cost of customers updating their own systems were missed out.
While HMRC had details in an annex, it excluded significant upfront costs of £1.5bn to VAT and self assessment customers from the business case’s cost-benefit analysis, the report said.
Read more: Banks tweak mortgage offers anticipating interest rate rises
If the analysis had been done properly, it would have shown that the combined cost to the government and to customers of proceeding with MTD for self assessment would have exceeded the forecast additional tax revenue, the NAO said. Its March 2023 business case omitted upfront costs to customers entirely.
“HMRC’s plan to digitalise the tax system has the potential to improve the system’s efficiency and effectiveness. It has made some recent progress on VAT but it has not yet tackled the most complex elements of the programme and significant delivery risks remain," said Gareth Davies, head of the NAO in a statement.
Yahoo Finance UK contacted HMRC for comment.
Watch: HMRC failing to collect £42bn in taxes — MPs say windfall could fix 'black hole' in UK's finances
Download the Yahoo Finance app, available for Apple and Android.
