Government price tag for making tax digital has ballooned, report warns

The official auditors said that the final bill is currently expected to be £1.3 billion.

The official auditors said that the final bill is currently expected to be £1.3 billion (Andrew Milligan/PA) (PA Wire)

The credibility of the Government’s plans to allow people to file their taxes digitally has been undermined by repeated delays and a bill that has increased about sixfold, the National Audit Office has said.

The official auditors said that the final bill is currently expected to be £1.3 billion, an increase of more than £1 billion from earlier estimates.

In 2016, HM Revenue and Customs had set aside £226 million for the programme, which would modernise its VAT, income tax self-assessment and corporation tax systems.

The NAO also found that the overall cost to the Government, and the extra costs that taxpayers themselves would face, “would have exceeded the forecast additional tax revenue”.

But HMRC excluded some of these costs from its reports, or relegated them to the footnotes.

The repeated delays and rephasing of Making Tax Digital have undermined the programme’s credibility and increased its costs

NAO boss Gareth Davies

It said that HMRC did not think the omissions of costs to taxpayers would have led to any decisions being taken differently.

Decision-makers knew about the costs ahead of some key decisions, it said.

The NAO also highlighted that the Government had initially set a target to make tax digital by 2020. In December last year this timetable was pushed back for the fourth time.

This had been affected by several events, including Covid-19 and Brexit, the NAO said.

NAO boss Gareth Davies said: “The repeated delays and rephasing of Making Tax Digital have undermined the programme’s credibility and increased its costs.

“They put at risk the support of taxpayers and delivery partners, including those who are essential to the programme succeeding.

“Our audit identified the omission of significant costs from some business cases. It is obviously important that business cases for major programmes such as this contain all the relevant information to support decision-making.

“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.”

HMRC said: “A project of this scale naturally comes with challenges, but Making Tax Digital (MTD) will deliver a strong return on investment for the taxpayer. We have always been wholly transparent about costs for business.

“We remain committed to ensuring that free software will be available for those with the simplest tax affairs. This is reflected in our estimates.

“Making Tax Digital is an important part of the transformation of the UK tax system. MTD has already made it easier for businesses to get their VAT right by helping them reduce errors and freeing up time to help them to grow.

“We are committed to bringing the same benefits to self assessment customers.”