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Making Tax Digital to raise more and cost more

05/11/21

Mark Say Managing Editor

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HM Revenue and Customs’ Making Tax Digital programme is expected to deliver additional revenue but also bring new costs for taxpayers, according to the National Audit Office (NAO).

HMRC plaque

It has included the forecast in its newly published report on the 2020-21 accounts of the department, along with noting issues connected to its legacy IT.

Making Tax Digital, announced in 2015, involves most individuals and businesses ultimately having a digital tax account. Its implementation has been slowed down with full delivery now scheduled for 2024 instead of 2019.

The report says that by this year it should generate additional revenue of £265 million, much lower than the original forecast of £470 million, but that by 2027-28 the figure should rise to £2.9 billion.

Against this, the costs of the programme between 2016-20 totalled £244 million, with a further £528 million expected for 2021-26.

Meanwhile, taxpayers will incur one-off transitional costs of around £1.5 billion.

Legacy IT issue

In addition, HMRC has reported that the age and extent of its legacy IT has made it more difficult to comply with the UK General Data Protection Regulation and associated security obligations.

Over the past two years it has decommissioned more than three-quarters of the 166 IT services it had identified as being obsolete and is dealing with the rest over the current financial year.

It is now working with the Information Commissioner’s Office to consider the steps it is taking arising from a review of legacy infrastructure commissioned in 2020.

The department has also struggled to recruit all the digital staff for which it had provision in its budget.

On a broad front, the report says that total tax revenue fell by 4.4% in 2020-21 because of the Covid-19 pandemic, and that HMRC now needs to recover fraudulent claims against the various support schemes and restore its tax compliance activity to pre-pandemic levels.

It says HMRC estimates that the yield from its tax compliance activities was down by 18% on the year before to £30.4 billion, that it opened 29% fewer civil compliance cases and closed 26% fewer.

It has also made an estimate of £5.8 billion of error and fraud in Covid-19 support.

Gareth Davies, head of the NAO, said:  "The Covid-19 pandemic has significantly reduced tax revenues and made it more difficult for HMRC to take enforcement action. Now that the initial impact of the pandemic has eased, normal tax compliance levels should be restored.

“HMRC also needs to recover money paid out through fraudulent claims made under the Covid-19 support schemes."

Image from iStock, Claudiodvizia

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