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UK Making Tax Digital for VAT revenues falls short by £215m after £357m investment

HMRC’s MTD for VAT 45% behind 2020/21 revenue budget; cost for taxpayers £1.5billion

The UK’s National Audit Office has stated that expected revenues from HMRC’s Making Tax Digital for VAT (MTD) campaign only raised £265million in 2020-21 against the forecast of £470million. However, the aim is to increase this to £2.9billion per annum by 2027-28 as adoption improves and other taxes join the digitisation programme.

The report also said that total UK tax revenue fell by 4.4% in 2020-21 because of the Covid-19 pandemic.

The first phase of MTD, digital filing via API-enabled software was introduced on 1 April 2019. Phase 2, digital recordkeeping and links started on 1 April 2021 after a one-year COVID-19 delay. The aim is to digitise VAT records and reporting to eliminate an estimated over £600m in taxpayer errors.

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Legacy tech issues and lack of digital staff

The programme has cost HMRC £357m between 2016 and 2021. A further £528million is forecast to be spent through to April 2026. Problems with legacy software and shortages in digital programmers have contributed to the underperformance to date.

It has been estimated that the cost of switching to MTD-enabled software will by £1.5billion for taxpayers.

Over 1.5 million VAT registered businesses have so far registered for the program, mandated since April 2019 for all but voluntarily VAT registered businesses. All taxpayers will be required to file and record digitally from April 2022.

MTD will be rolled out other taxes:

  • Income tax self assessments and landlords April 2024 (delayed in September from April 2023) if their income exceeds £10,000
  • Partnerships April 2025

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