The digitalisation of tax will cost HMRC £1.3bn, more than £1bn above the original budget of £226m, according to a report by the National Audit Office (NAO). So far HMRC has spent £642m on developing Making Tax Digital (MTD).

From the outset, the NAO said HMRC had set ‘unrealistic’ ambitions and timescales, with ‘unknown levels of risk’. It also underestimated the complexity involved in moving from its own legacy systems and had not fully understood the scale of the challenge of moving data and systems when it prepared its initial business case.

In its May 2022 business case, HMRC forecasted total net ongoing costs to taxpayers of around £900m over five years to comply with MTD.

However, the NAO found that HMRC excluded significant upfront costs of £1.5bn to VAT and self assessment taxpayers from the business case’s cost-benefit analysis.