HM Revenue and Customs ignored billions of pounds of projected costs for individual taxpayers when seeking more spending for the Making Tax Digital programme, under which it is requiring millions of taxpayers to provide quarterly data through third-party software.
A report from parliament’s Public Accounts Committee says the department excluded a total of £2bn in transitional costs for customers from projections in business cases published in 2022 and 2023. The committee added that HMRC has not said how many and which customers will face the highest compliance costs.
Committee chair Dame Meg Hillier said the decision to exclude transitional costs from the business cases was “utterly extraordinary” and that “future transparency on costs and benefits must be non-negotiable”.
The committee recommended that HMRC considers how it can simplify arrangements and reassess the costs for self-assessment taxpayers, the next group to be affected by MTD. The department is also urged to research and publish information on services its customers would find helpful and ensure that future digitisation proposals “start with what taxpayers need” and improve on existing arrangements.
In June, a National Audit Office report said HMRC had failed to acknowledge £1.5bn in costs to customers in switching to MTD, with many having to spend around £500 each to comply.
HMRC launched MTD in 2015 with the intention of applying it to self-assessment businesses and landlords by 2018, VAT by 2019 and corporation tax by 2020. The department has successfully introduced it for 3.2m businesses paying VAT, although it took 15 months longer than expected to migrate data.
But HMRC has repeatedly pushed back its start date for businesses and landlords using self-assessment, which covers around 11 million people. It currently says it will introduce MTD for self-assessment businesses earning more than £50,000 in April 2026, with those earning more than £30,000 following a year later. It has no date for migrating those making less than £30,000 or for corporation tax.
The project’s estimated cost for applying MTD to all three taxes in 2016 was £222m. HMRC now expects that introducing MTD for VAT and self-assessment will cost £1.3bn and has no figure for the additional costs for corporation tax.
PAC recommended that HMRC should specify in detail how senior leaders will be held accountable for delivering against its timetable and budget, including consequences for further slips.
Responding to the committee’s report, an HMRC spokesperson said: “The additional tax revenue expected from MTD has increased to £3.9bn, offsetting any additional costs. MTD continues to provide a high return on investment in delivering this complex programme, building on the successful digitalisation of VAT.”
Chancellor Jeremy Hunt’s Autumn Statement this week included a commitment to simplify the design of MTD for self-assessment customers.
HMRC is working with software developers, tax agents, representative organisations and businesses on simplification and testing in advance of its introduction.