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HM Revenue and Customs (HMRC) has been criticised for “repeated failures” that led to its digital tax drive being delayed for years and costing £1bn more than expected.
In a damning report, the Public Accounts Committee accused the tax office of misjudging the complexity of rolling out Making Tax Digital while also hiding how much it would actually cost taxpayers.
The much-delayed programme – first unveiled in 2015 – is a key part of HMRC’s strategy to digitise the tax system. The hope is that this will free HMRC up to tackle tax avoidance and evasion.
But since it was announced, the programme has been delayed four times and run £1bn over budget.
VAT registered businesses have been required to use Making Tax Digital since April 2022, however, it will not be extended to self assessment taxpayers until 2026 – eight years later than planned.
The PAC said HMRC had underestimated the “more complicated” task of rolling the programme out to self assessment taxpayers. HMRC also ignored advice from stakeholders, including tax experts and software developers, and failed to reveal over £2bn costs that would be borne by the taxpayer when pushing for investment in the programme, the report said.
The National Audit Office previously reported that the tax office omitted £1.5bn of costs to VAT and self assessment taxpayers in its 2022 cost-benefit analysis. The PAC said the taxman also failed to disclose costs of £640m when making its business case in 2023.
Dame Meg Hillier, chairman of the PAC, called HMRC’s omission “utterly extraordinary”.
She said: “When reporting on proposals for digitalising the tax system, our Committee should not have to be recommending that HMRC start with what taxpayers need – in an ideal world, one would hope this would simply go without saying. But seven years and £640 million into the Making Tax Digital programme, we are concerned HMRC is also succeeding in making tax difficult.”
Making Tax Digital will require some of those filing for self assessment to pay for third party software and submit tax returns quarterly. The PAC said that HMRC had lost sight of its original aim to reduce the burden on taxpayers.
Ms Hillier said: “Imposing significant additional burdens on customers in the middle of a cost of living crisis could not be less welcome. HMRC must now look up from what it is doing and research what services customers would actually find most helpful.”
An HMRC spokesman said: “The additional tax revenue expected from Making Tax Digital has increased to £3.9bn, offsetting any additional costs. Making Tax Digital continues to provide a high return on investment in delivering this complex programme, building on the successful digitalisation of VAT.”