MTD ‘out of control’

What do the tax professionals think about the NAO's latest report? Let’s just say they aren’t happy!

Making Tax Digital (MTD) is ‘out of control’, with HMRC vastly underestimating development and implementation costs and overestimating the benefits to the exchequer of its flagship scheme, says the Chartered Institute of Tax (CIOT) and the Association of Taxation Technicians (ATT) following a report from the National Audit Office.

The two bodies contributed to the report and have repeated their calls to review the business case for MTD, after the report suggested the scheme is now expected to cost around five time its original 2016 budget, and excluded upfront costs of £1.5 billion to VAT and SelfAssessment taxpayers from its business case.

Chair of the joint CIOT and ATT Digitalisation and Agent Services Committee, Alison Kerrey (pictured), said: “HMRC and government’s execution of this major change to the tax system feels like it is out of control, with spiralling costs, unrealistic timescales and questionable benefits.

“While we support digitalisation, the report backs up our concerns that HMRC’s estimates groups. The costs to these entities if they had to comply with MTD for Self Assessment could amount to £1.2 billion, an average of £460 each, and almost £1,000 for some self-employed businesses. HMRC has not assessed how many businesses will face different amounts of upfront costs. have vastly underestimated costs to taxpayers and overestimated benefits to the exchequer – it is time to pause and take stock.”

HMRC’s ability to secure value for money from the remaining spend on MTD – forecast at £620 million at March 2023 – now depends on it developing a more robust business case exploring the options for reducing costs; resolving questions about design and costs to customers; and rigorously managing delivery risks.

The NAO recommends that HMRC should prepare a separate business case for MTD for Self Assessment so that decision-makers can understand the costs, benefits and delivery risks for the full range of options. This should include greater clarity on how different groups of business taxpayers are affected.

The report indicated that MTD was announced before any business case had been prepared for it, with later cases in May 2022 and March 2023 seeking additional funding omitting the significant upfront costs for taxpayers.

It also noted that during 2022-23, moving VAT records onto its new system initially lead to VAT liabilities being overstated by around £5 billion. HMRC will only move one year’s taxpayer data for Self Assessment.

Kerrey continued: “We have repeatedly questioned whether the business case for MTD stacks up and fully agree with the NAO that a fresh, complete business case needs preparing. Even the latest estimates of a 2:1 return on investment still seems marginal, based on experiences to date with spiralling costs, speculative revenue benefits, and the need to operate two systems for the foreseeable future.”

It also recommends the HMRC works collaboratively with stakeholders on how best to create the new system and resolves questions around software.

Gareth Davies, the head of the NAO, said: “The repeated delays and re-phasing of Making Tax Digital have undermined the programme’s credibility and increased its costs. They put at risk the support of taxpayers and delivery partners, including those who are essential to the programme succeeding.

“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.

“HMRC’s plan to digitalise the tax system has the potential to improve the system’s efficiency and effectiveness. It has made some recent progress on VAT but it has not yet tackled the most complex elements of the programme and significant delivery risks remain.”