Multi-tasking blunder leaves UK tax digitization plans 3 years late, 5 times over budget

A decision to ride two horses at the same time left the UK tax collector's plans to go digital with a three-year delay and a budget bursting from £226 million to £1.3 billion.

This is according to public spending watchdog, the National Audit Office (NAO), which found His Majesty's Customs & Revenue (HMRC) introduced a flaw into its plans to digitize tax collection by ignoring proposals to sequence two of the most difficult elements of the gargantuan 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 said.

However, HMRC estimated that improved processing of VAT through the scheme led to additional revenue of between £185 million and £195 million in 2019-20.

Launched in 2016 with a budget of £226 million, MTD planned to modernize HMRC's systems for VAT, income tax self-assessment and corporation tax. It required business taxpayers to keep and submit quarterly digital tax records. HMRC also intended to move its tax systems and records onto a modern tax management platform by 2020.

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Gareth Davies, head of the NAO, said in a statement: "The repeated delays and rephasing 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 has not yet tackled the most complex elements of the programme, and significant delivery risks remain."

The NAO found that 3.2 million VAT taxpayer records moved onto HMRC's modern IT platform by March 2023. But 14 million self-assessment and corporation tax records are due to move from HMRC's legacy systems to a modern IT platform, while only 1.6 million have been timetabled.

The NAO said the program had been affected by the UK's departure from the EU and the COVID-19 pandemic, which meant resources had to be diverted to other areas. ®