Taxing times: UK missed out on £1.75B because of digitization delays

Delays to a central plank of the UK tax collector's efforts to provide an end-to-end digital service "mean the Exchequer will likely miss out on additional tax revenue of £1.75 billion," according to a spending watchdog.

At a time when government debt is soaring, there have been repeated delays in introducing Making Tax Digital for self-assessment taxpayers with lower incomes.

His Majesty's Revenue & Customs (HMRC) has also still not said when it will deliver Making Tax Digital for Corporation Tax or how much this will cost, according to Parliament's Public Accounts Committee (PAC).

In October 2023, the government borrowed £14.9 billion, the second-highest borrowing figure for that month since records began in 1993. The national debt remains historically high, narrowly below GDP at £2.6 trillion.

Over the past seven years, HMRC has pushed through its program to digitize the tax system. The PAC now reports that it expects introducing Making Tax Digital for VAT and self-assessment alone to cost 400 percent more in real terms than the original estimate of £222 million in 2016 for all three taxes in the program.

"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," the report says.

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The PAC has called for HMRC to test whether existing plans for Making Tax Digital are "sufficiently detailed and rigorous to ensure the successful delivery of the remainder of the programme" and report back to the committee. It should also "specify in detail how it will hold senior leaders accountable for delivering against the programme's timetable and budget, and what consequence there will be for any further timetable and budget overruns."

In June, the National Audit Office (NAO) said the decision to ride two horses at the same time left the program with a three-year delay and a budget bursting from £226 million to £1.3 billion.

The NAO found that HMRC introduced a flaw in its plans to digitize tax collection by ignoring proposals to sequence two of the most difficult elements of the program: digital record keeping for business taxpayers and replacing legacy systems.

"HMRC therefore proposed to do both at the same time. HMRC did not fully assess the scale of work required at the outset of the Making Tax Digital (MTD) programme, or the additional complexity of introducing digital record keeping for business taxpayers at the same time as replacing its legacy systems," the report adds. ®