Making Tax Digital (MTD) was a flagship programme launched by HMRC in 2015-16 for the digital transformation of the UK tax system. It aimed to improve tax collection, make sustainable cost savings and improve customer service by modernising systems. In its ambition to become a leading digital tax authority, HMRC initially planned to introduce MTD across three business taxes by 2020.
MTD for VAT was introduced as initially planned in 2019 for large traders, with its introduction for smaller traders later following in 2022. However, in a December 2022 announcement, the Government confirmed that MTD for Self-Assessment business taxpayers would be delayed until 2026. No date has even been set for introducing MTD for corporation tax.
In a recent report published in June 2023, the National Audit Office (NAO) concluded again that, whilst the digital transformation of the tax system was both necessary and had the support of stakeholders, HMRC's original plans for introducing MTD were not realistic. HMRC had not fully assessed the scale of work required, in light of the significant behavioural, administrative and technological changes that were required.
The NAO found that HMRC omitted around £1.4 billion of upfront transitional costs to customers from the cost-benefit analysis in its business cases seeking further investment in the programme. That meant the business case should have shown the combined costs to HMRC and customers of proceeding with MTD for Self-Assessment were greater than the additional tax revenue expected.
Other findings include the spiralling costs of introducing MTD generally. MTD for VAT alone has cost £70 million more than expected for introducing MTD across all three business taxes. In real terms, the estimated costs have increased by 400% to £1.3 billion.
Any large-scale system transformation will cause disruption and pose fertile grounds for disputes to arise. When they do, taxpayers should consider taking legal advice at the earliest opportunity to face any potential issues head on and keep the inevitable costs to a minimum.