Making Tax Digital: Understanding the costs and benefits for taxpayers

A National Audit Office report has identified two areas of risk in HMRC’s stated aim to have “one of the most digitally advanced tax administrations in the world”. These are optimism bias in the department’s key assumptions, and the need to understand the costs and benefits of the proposed “transformation” for taxpayers.

The NAO said: “Most business customers will be required to update HMRC quarterly rather than annually about their tax affairs, and some may need to purchase new software that works with the new systems … Some businesses are sceptical of HMRC’s evaluations of the costs and benefits of previous changes to the tax system. HMRC plans to develop a fuller picture of what it will cost taxpayers and businesses to use the new systems over the next year.”

HMRC’s annual report said: “We want the customer experience to be consistently excellent by building on our progress in rolling out new digital services that will make dealing with tax and payments quicker, easier and more efficient for millions of our individual and business customers.”

Tax reliefs
The NAO report on HMRC’s accounts also noted that HMRC’s monitoring of tax reliefs is “not yet systematic or proportionate to their value or the risks they carry”. The department could not demonstrate a consistent approach to assessing the degree of risk that each relief carries.

Tax credits
Once again the comptroller and auditor general qualified his audit opinion on HMRC’s resource accounts because of “material levels of fraud and error” in payments of personal tax credits. He has qualified the accounts on these grounds “every year since tax credits were introduced in 2003/04”. HMRC analysis showed that during 2014/15 it continued to reduce losses caused by children being incorrectly included in claims and by undeclared partners, but the most recent analysis suggests “it has not continued to reduce losses in other categories, particularly relating to earnings”.