The National Audit Office (NAO) has released a report, “Progress with Making Tax Digital” expressing several concerns about the initiative’s execution. These include overly ambitious goals and timelines coupled with undetermined risks, insufficient engagement with commercial partners, underestimation of the complexity of transitioning from legacy systems, and a focus on short-term outcomes.

The NAO report also highlighted that HMRC failed to account for significant costs to taxpayers in its cost-benefit analysis when requesting additional funding for the tax digitisation initiative.

HMRC’s initial 2016 estimate for the implementation cost of Making Tax Digital (MTD) for VAT, business taxpayer self-assessment, and corporation tax was £226m. However, the project’s actual cost exceeded this figure by more than £1bn, totalling £1.3bn, due to numerous challenges along the way.

MTD for VAT was successfully launched on time for larger businesses in 2019, but the income tax self-assessment component of MTD has been delayed four times. These delays also led to changes in its scope and minimum threshold. Meanwhile, proposals for MTD for corporation tax have yet to materialise.

Consequently, the cost estimate for introducing MTD for VAT and MTD ITSA for business taxpayers with incomes over £30,000 has significantly increased.

NAO’s head, Gareth Davies, commented on the report, stating that the continual postponements and scope changes of Making Tax Digital have undermined the program’s credibility, escalated its costs, and jeopardised the support of taxpayers and delivery partners. These partners are critical to the success of the initiative.

“While HMRC’s plan to digitalise the tax system could potentially enhance the system’s efficiency and effectiveness, it has not yet addressed the program’s most complex elements and substantial delivery risks persist,” Davies said, noting that some progress has been made on VAT.