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HM Revenue & Customs omitted key figures from its business case about how much its Making Tax Digital programme will cost the public, a report by the National Audit Office has revealed.
The flagship digitisation programme aims to maximise tax revenue, save government money and improve customer service by modernising HMRC’s systems for value added tax, self-assessment income tax and corporation tax.
It requires businesses and individuals to keep digital records and report their income to HMRC every quarter.
However, since it began rolling out in 2016 the programme has been beset by delays and complaints from some professional bodies and taxpayers over unexpected costs.
A report released by the NAO on Monday revealed the programme was now expected to cost the government five times the original forecast, in real terms, up from £226mn in 2016 to £1.3bn today.
Meanwhile, the report criticised HMRC for presenting an “incomplete and inaccurate” picture on the initial upfront costs taxpayers would face getting set up on the new system.
The report said a cost-benefit analysis of the project produced last year by HMRC had failed to include £1.5bn in upfront costs HMRC had estimated businesses and the self-employed would pay to comply with the new system. This includes the likes of the price of new IT and accounting services.
The NAO report revealed HMRC had estimated average MTD costs for each business of £330 — although said this could rise to nearly £1,000 for some people.
HMRC’s analysis had been produced to seek more funding from the Treasury for the digitisation project. However, while the analysis included net ongoing costs to taxpayers of about £900mn over five years it only referred to the upfront costs in the small print of the business case. And it did not include it in the calculation.
If HMRC had included the £1.5bn cost to taxpayers it would have shown the total amount paid by government and individuals for MTD for Self Assessment exceeded any additional tax revenue, the NAO said.
“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,” said Gareth Davies, head of the NAO.
Davies also criticised the delays that have beset the programme. While MTD for VAT is now in place, in December the government pushed back the start date of MTD for self assessment for the fourth time — to 2026.
These repeated delays had “undermined the programme’s credibility” Davies said and that “put at risk the support of taxpayers and delivery partners”.
HMRC said the MTD programme had “made it easier for businesses to get their VAT right” and said it was “committed to bringing the same benefits to self-assessment customers”.
“A project of this scale naturally comes with challenges, but MTD will deliver a strong return on investment for the taxpayer,” the tax office added. “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.”
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