MTD ‘out of control’ say tax professionals

Making Tax Digital (MTD) is “out of control”, with HMRC vastly underestimating development and implementation costs and overestimating benefits to the exchequer of its flagship scheme, says the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) following a damning report by the National Audit Office (NAO).¹

The two bodies contributed to the report and have repeated their calls to review the business case for MTD, after the report suggested the scheme is now expected to cost around five times its original 2016 budget and excluded upfront costs of £1.5 billion to VAT and Self-Assessment customers from its business cases.

Alison Kerrey, Chair of the joint CIOT and ATT Digitalisation and Agent Services Committee, said:

“HMRC and the government’s execution of this major change to the tax system feels like it is out of control, with spiralling costs, unrealistic timescales, and questionable benefits. While we support digitalisation, the report backs up our concerns that HMRC’s estimates have vastly underestimated costs to taxpayers and overestimated benefits to the exchequer – it is time to pause and take stock.

“To announce a project as substantial as MTD, with significant impacts for businesses, agents, software companies and HMRC themselves, without being able to point to a proper business case beforehand, simply beggars belief.

“And then, just three months ago, to omit such massive sums from the cost : benefit analysis, is equally remarkable. You wonder how HMRC would react, and the behaviour they would infer, if a taxpayer had made a similar omission from their returns.”

The report indicates that MTD was announced before any business case had been prepared for it, with later cases in May 2022 and March 2023 seeking additional funding omitting the significant up-front costs for taxpayers.

It also noted that, during 2022-23, moving VAT records onto its new system initially led to VAT liabilities being overstated by around £5 billion. HMRC will only move one year’s taxpayer data for Self-Assessment.

Alison Kerrey continued:

“We have repeatedly questioned whether the business case for MTD stacks up and fully agree with the NAO that a fresh, complete business case needs preparing. Even the latest estimate of a 2:1 return on investment still seems marginal, based on experiences to date with spiralling costs, speculative revenue benefits, and the need to operate two systems for the foreseeable future.

“The haste with which MTD is being pushed forward, without sufficient preparation or testing, and with questionable business justification, has itself caused errors totalling more than MTD is expected to generate by 2033-34. It has also led to significant practical concerns amongst practitioners, such as how multiple agents can operate within the system. As well as a cost:benefit analysis, a full review of the fundamental principles behind MTD, is now needed.

“Transferring VAT records onto HMRC’s new systems created, in one year, errors totalling more than MTD is expected to generate by 2033-34. Errors are precisely what MTD is seeking to minimise, not introduce, and this further underlines the need for thorough testing before any additional MTD requirements are introduced.”