HMRC digital transition set to cost £1.3bn – four times over budget

Transitioning HMRC to a digital system is now expected to cost as much as £1.3bn - and has gone four times over budget, MPs have warned.

The new digital system for HM Revenue and Customs (HMRC) is now expected to cost as much as £1.3bn – four times over budget, MPs have warned.

HMRC is transitioning to a digital tax system, but the programme, Making Tax Digital, has been accused of “making tax difficult” by senior MPs.

Costs for the scheme were thought to amount to £222m, back in 2016, but are now expected to hit £1.3bn – a 400 per cent increase – just to cover VAT and self assessment – according to a report by the influential Public Accounts Committee (PAC) group of MPs.

Due to “HMRC’s poor track record of repeated delays” and “widespread and repeated failures,” MPs have “little confidence” it will hit deadlines for the scheme, the report stated.

Upfront transition costs of £2bn for customers were excluded from 2022 and 2023 business cases, the report said, with business taxpayers on the hook for up to £1.9bn over five years.

Chairman Dame Meg Hillier warned: “Seven years and £640m into the Making Tax Digital programme, we are concerned HMRC is also succeeding in making tax difficult.

“We are also concerned at the substantial costs to be imposed on many taxpayers.

“HMRC’s exclusion of billions of pounds of projected costs when seeking investment for the programme is utterly extraordinary. Future transparency must be non-negotiable.”

The committee also found HMRC had “lost sight” of putting customers at the heart of tax system changes and is “increasing the burdens” while not being “open enough” about costs.

Realities facing business taxpayers have not been taken “sufficient account of,” the report warned, and taxpayers will have to “spend more and do more to comply,” including making self assessment taxpayers shell out for third party software and file tax returns quarterly.

While HMRC is yet to determine how digital tax will work for self assessment, taxpayers with multiple agents and for shared property owners.

Hillier, Labour MP for Hackney South and Shoreditch, added: “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.”

Bosses at the tax office also previously confirmed they were preparing for another closure of the tax self-assessment helpline after it gave users just a 48-hour warning before shutting phone lines for three months this summer, causing outrage among taxpayers and business owners.

Officials said the closure was a trial of its so-called seasonal model pilot, in a bid to shift queries from taxpayers who complete a self-assessment on their income tax to online.

Another trial is expected while HMRC continues to move the department’s customer services from time-consuming post and phone calls over to digital chat support.

A spokesperson for HMRC said: “The additional tax revenue expected from Making Tax Digital has increased to £3.9bn, offsetting any additional costs.

“MTD continues to provide a high return on investment in delivering this complex programme, building on the successful digitalisation of VAT.”


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