The National Audit Office (“NAO”) has published its report “Progress with Making Tax Digital”. The report considers progress to implement Making Tax Digital (“MTD”), and whether HMRC’s latest plans provide confidence that the programme will deliver value for money. Its main conclusion is that the repeated delays and rephasing of MTD has undermined its credibility and increased its costs. . HMRC has responded to the NAO’s report in an email from its CEO, Jim Harra.
Specifically, the NAO report looks at:-
- HMRC’s original vision, options and plans for MTD;
- HMRC’s progress between summer 2017 and the end of 2022; and
- the realism of HMRC’s latest plans.
The report focuses on the MTD programme from 2016 onwards and does not assess wider changes within HMRC, but these are referred to where they relate to MTD. Appendix one describes the NAO’s audit approach and evidence base. Appendix two shows planned implementation dates for digital record keeping by business taxpayers since 2015. The report’s conclusions are set out below.
HMRC’s vision to digitalise the tax system has the potential to bring about a step-change in the system’s efficiency and effectiveness. The principle of digitalising tax has broad support among stakeholders provided it makes it easier to pay tax. HMRC launched digital record keeping for VAT for larger businesses on time, but it needed more time to move taxpayer records off legacy systems due to the extent of data issues it had to deal with.
The report found that HMRC’s initial timeframe for MTD was unrealistic. It did not allow sufficient time for HMRC to explore the full range of options that would achieve the programme’s aims and select one that it could implement. Each announcement has set an ambitious timeframe for delivery, with several aspects of the MTD programme to be delivered in parallel. The repeated delays and rephasing of MTD has undermined its credibility and increased its costs. There is a risk that delivery partners and taxpayers disengage from a programme that can only succeed if those groups significantly change their behaviour. Higher costs were not inevitable, had HMRC taken more time to plan and consider the realism of the options.
The report further concluded that HMRC has not demonstrated the programme offers the best value for money for digitalising the tax system, with later business cases significantly underplaying the total cost to customers of making the change. The programme should now develop a robust business case which includes a comprehensive and up-to-date assessment of the costs to customers of implementing MTD. Planning was also found to have been too high-level and the risk remains that further delays will add costs and defer benefits.
HMRC is reviewing how MTD will work for businesses and landlords with lower Self-Assessment income. The report found that it should take this opportunity to assess how far the programme is improving services, reducing burdens, and making the tax system easier to comply with and use lessons from this review to ensure the wider programme is finally on track to secure the benefits it has long promised.
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