UK government’s flagship ‘Making Tax Digital’ programme:

 – 400% real terms cost increase since 2016 and 8 years behind schedule.

By stewartb

One of the oddities about corporate media and BBC news output in Scotland is that the performance of major projects/programmes for which the Westminster government is responsible gets scant if any attention. This is the case even for projects within the scope of reserved powers: of course these are projects where taxes raised in Scotland are allocated to cover a share of Westminster’s total expenditure i.e. they appear in the GERS figures as public funds expended on Scotland’s behalf.

The prime source of information on these projects is the National Audit Office (NAO). Candidly, NAO reports generate remarkably little media coverage anywhere in the UK in contrast to the coverage given in Scotland to the output of its equivalent, Audit Scotland.

The NAO has just published this: NAO (12 June 2023) Progress with Making Tax Digital. Value for Money report. (https://www.nao.org.uk/wp-content/uploads/2023/06/progress-with-making-tax-digital.pdf )

Background

HM Revenue & Customs (HMRC) launched its ‘flagship transformation programme’ Making Tax Digital (MTD) in 2015-16. The aims were to: (i) maximise tax revenue; (ii) make sustainable cost savings; and (iii) improve customer service by modernising HMRC’s systems for three business tax payers – VAT, Income Tax Self Assessment and Corporation Tax. HMRC intended to move its tax systems and tax records onto a modern tax management platform by 2020. It also planned to require business taxpayers to keep and submit quarterly digital tax records.

Back in 2018 the NAO reported: ‘changes in MTD’s scope and delays had deferred the benefits for HMRC, and that overall it expected MTD to cost rather than benefit business taxpayers’.

Latest findings

Here is what the NAO is now saying about this programme:

• £226 million = HMRC’s original estimate in 2016 of the cost of introducing Making Tax Digital for three business taxes: VAT, Self Assessment for business taxpayers and Corporation Tax

• £1.3 billion = HMRC’s 2023 estimate of its costs to introduce Making Tax Digital for VAT and Self Assessment business taxpayers (i.e. just two of the taxes) with incomes over £30,000

• £1.5 billion = the upfront transitional costs to VAT and Self Assessment business taxpayers with incomes over £10,000 that will be incurred in order to comply with Making Tax Digital –  according to the NAO, ’despite estimating large upfront transitional costs for customers in 2021, HMRC omitted these from its cost-benefit analysis in May 2022 and March 2023 business cases seeking further investment’

• the timetable for Making Tax Digital for Self Assessment has been delayed four times since first announced in 2015
  • ‘ HMRC consulted on its plans in August 2016, but it had not done the detailed design work needed to support digital tax records or modernise its systems’.

The NAO also finds:

• ‘HMRC’s original plan to introduce Making Tax Digital by 2020 was not realistic’

• HMRC now estimates that ‘MTD for VAT had cost around £295 million (£322 million at 2022-23 prices) by March 2023; around £70 million more than it had originally expected MTD would cost for all three business taxes.’
  • ‘HMRC has identified that during 2022-23 the move to its modern tax management platform initially led to VAT liabilities being overstated by around £5 billion.’

• ‘Making Tax Digital for Self Assessment is at least eight years behind the original timetable and HMRC has not resolved some important elements of its design.’

• ‘In 2016 HMRC had expected MTD would generate an annual return of £600 million in additional tax revenue from VAT and Self Assessment by 2020-21. It now expects to reach this level in 2027-28.’

• ‘HMRC’s estimated costs have increased to £1.3 billion (a 400% increase in real terms since 2016), with £642 million already spent by March 2023.

On value for money, the NAO view includes this: ‘The repeated delays and rephasing of MTD has undermined its credibility and increased its costs.’

And adds: ‘Higher costs were not inevitable, had HMRC taken more time to plan and consider the realism of the options. HMRC has not demonstrated the programme offers the best value for money for digitalising the tax system, with later business cases significantly underplaying the total cost to customers of making the change.’

And for context the NAO reports: ‘In 2022, many tax authorities in other countries with large economies reported providing digital services that are not widely available in the UK.

Unlike taxpayers in many of the world’s larger economies, UK taxpayers are unable to use digital services to file objections or deal with correspondence and HM Revenue & Customs (HMRC) does not automatically process tax returns or taxpayer registrations.’

Perspective

Digital transformation is necessary but difficult: just as well  we in Scotland can rely on the broad shoulders of the mighty UK then? Well, not if we take the example of Estonia, population c. 1.3 million and as recently as 1991 held within the Soviet Union.

Since it regained independence, Estonia has been a trailblazing innovator in offering sophisticated online government services to its citizens. Today, it’s resulted in the kind of digitised tax systems that HMRC can only dream of. In the UK recent Which research showed it takes people an average of 2.5 hours to file their tax returns (one in 10 spend more than five hours). In Estonia, the whole process can take as little as three minutes. Even though 94% of all tax returns in the UK today are filed online, Estonia reached this figure back in 2007 (at the time, the take-up of online filing in the UK was around 7%).

Source:  Association of Accounting Technicians (AAT), London (6 July 2021) Is Estonia a blueprint for how digital taxes could work in the UK? (https://www.aatcomment.org.uk/accountancy-resources/making-tax-digital/is-estonia-a-blueprint-for-how-digital-taxes-could-work-in-the-uk/ )

End note

A report similar to the NAO’s from Audit Scotland would have BBC Scotland journalists salivating! Think of the potential headlines and the Labour spokesperson quote that could have been written about the Scottish Government!

In this odd polity of Scotland, the fate of £1 of public funds spent in Scotland by a government that we by a majority voted for is of such intense interest to journalists here whilst typically they ignore the fate of a similar £1 of public funds attributed to Scotland and spent on its behalf – whether the object of the spend it’s wanted or not, whether well spent or not – by a government that by a majority, voters in Scotland rejected.

Is it because the journalists writing for consumption in Scotland tacitly accept that voters here – unlike in England –  have little or no agency over the latter expenditure? So NAO assessments of Westminster government projects/programmes within reserved policy areas are to voters in Scotland essentially ‘academic’ exercises!