Progress with Making Tax Digital – Report Summary

Summary

Digitalising the tax system should bring significant benefits to both His Majesty’s Revenue & Customs’ (HMRC) and its customers, but we are concerned that the additional burdens of Making Tax Digital will make tax more difficult for taxpayers. HMRC announced in 2015–16 that its flagship digital transformation programme “Making Tax Digital”, would make it easier for taxpayers to get their tax right, helping to reduce the £9 billion of tax revenue lost each year from taxpayer errors. HMRC has had some success with Making Tax Digital for VAT and estimates that this is contributing £400 million a year in additional tax revenue. However, HMRC has lost sight of the need to put customers at the heart of its changes to the tax system. The programme was originally expected to reduce the overall burden on customers but will now impose significant additional burdens and costs on customers at a time when many can least afford it. We are concerned that HMRC omitted upfront costs to customers transitioning to Making Tax Digital from its recent business cases. Without a rigorous focus on what will make the tax system easier for everyone there is a risk that the planned changes will add further complications rather than simplify it.

HMRC launched Making Tax Digital for VAT on time for larger businesses, but it needed three-years longer to introduce the programme for smaller businesses. The changes for Income Tax Self Assessment are on a larger scale and level of complexity to VAT. HMRC completely underestimated the scale of the challenge of digitalising the tax system and its poor delivery of the programme has resulted in repeated delays and spiralling costs. The programme is now running at least eight years late for Self-Assessment with the government’s most recent announcement in December 2022, pushing it back to 2026 for the first customers affected.

Seven years in, with £640 million of taxpayer’s money spent, we are concerned that the final bill for the programme could end up much higher than HMRC’s latest forecast of £1.3 billion. In 2023 HMRC started to work more collaboratively with stakeholders on how Making Tax Digital will work in practice. However, with some significant design issues still to resolve and less than three years before HMRC begins introducing the programme for self-employed people, we are sceptical its new timetable is achievable. HMRC must ensure its plans are realistic and specify and commit to a budget and timetable and hold senior leaders accountable for delivery.