A report published by the National Audit Office (NAO) has found that HMRC’s Making Tax Digital (MTD) initiative is expected to cost around £1 billion more than its initial £226 million budget, which was forecast in 2016.

MTD is intended to modernise the tax system for income tax self assessment, VAT and corporation tax. It requires taxpayers to keep records digitally and submit quarterly tax returns.

The NAO labelled HMRC’s initial timeframe for the implementation of MTD as ‘unrealistic’. It stated that bosses ‘failed to take the scale of the task into account’.

According to the NAO, HMRC’s ability to secure value for money from MTD now relies on exploring the options for reducing costs, resolving questions about design and rigorously managing delivery risks. 

The NAO has recommended that HMRC prepares a separate business case for MTD for Income Tax Self Assessment (MTD for ITSA) so that those making decisions can better understand the costs, benefits and risks associated with the initiative. It has urged HMRC to include ‘greater clarity’ on how taxpayers will be affected.

Gareth Davies, Head of the NAO, said:

‘The repeated delays and rephasing of MTD have undermined the programme’s credibility and increased its costs. They put at risk the support of taxpayers and delivery partners, including those who are essential to the programme succeeding.

‘HMRC’s plan to digitalise the tax system has the potential to improve the system’s efficiency and effectiveness. It has made some recent progress on VAT but it has not yet tackled the most complex elements of the programme and significant delivery risks remain.’

Internet link: National Audit Office website

The Bank of England has raised UK interest rates to a 15-year high of 5% as it continues its battle against inflation.

Despite concerns that mortgage-holders face a timebomb of higher rates, the Bank’s Monetary Policy Committee (MPC) decided to raise its benchmark rate from 4.5% to 5%, an increase of half a percentage point.

It is the 13th increase in UK interest rates in a row, going back to December 2021.

Chancellor Jeremy Hunt said:

‘High inflation is a destabilising force eating into pay cheques and slowing growth.

‘Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down.

‘Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later.’

Internet link: Bank of England website

The UK’s rate of inflation plateaued at 8.7% in May, data published by the Office for National Statistics (ONS) has shown.

Inflation was expected to fall in May but remained at 8.7% – the same rate as was recorded in April. The rate of 8.7% is higher than economists had expected, and many now anticipate a rise in interest rates.

Experts have stated that so-called ‘core inflation’ – which excludes volatile elements such as food, fuel and energy prices – is now at its highest level in the UK for over 30 years. Many warn that the high inflation rate will have knock-on effects for mortgages.

UK inflation is higher than inflation rates in comparable countries, the data revealed: Germany recorded a rate of inflation of 6.3%; France’s rate is currently 6%; and the USA’s inflation rate is 2.7%.

Chancellor Jeremy Hunt said:

‘We need to squeeze every last drop of high inflation out of the economy.

‘Inflation is the biggest, the most invidious, tax rise the British people are facing right at the moment because it is eroding the value of their salaries – so that is our primary priority.’

Internet link: Office for National Statistics website

HMRC has extended the voluntary national insurance contributions (NICs) deadline until 2025.

Extending the voluntary NICs deadline until 2025 will give people more time to consider whether paying voluntary contributions is right for them, and also ensures individuals do not miss out on the possibility of boosting their State Pension entitlements.

The original deadline was extended to 31 July 2023 earlier this year. HMRC said the new extension allows thousands more people to add extra years to their national insurance record.

HMRC stated that all relevant voluntary NIC payments will be accepted at the rates applicable in 2022/2023 until 5 April 2025.

Victoria Atkins, Financial Secretary to the Treasury, said:

‘People who have worked hard all their lives deserve to receive their State Pension entitlement, and filling gaps in national insurance records can make a real difference.

‘With the deadline extended, there is no immediate rush for people to complete gaps in their record and they will have more time to spread the cost.’

Internet link: HMRC press release

The Institute of Chartered Accountants in England and Wales (ICAEW) has written to HMRC regarding how Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) can be better shaped to suit the needs of small property businesses and the self-employed.

On 19 December 2022, HMRC announced the deferral of MTD for ITSA’s start date and an informal review into the initiative.

The ICAEW has written to HMRC to outline key points that it believes should be considered before the implementation of MTD for ITSA. These include rethinking the ‘disproportionate’ administrative burden associated with quarterly updates; decoupling the requirements to maintain digital records and to submit details of income from self-employment and property directly from software; and refocusing the MTD for ITSA initiative on digital record keeping and filing from software.

HMRC intends to make its final recommendations on MTD for ITSA to the Financial Secretary to the Treasury in June 2023.

Internet link: ICAEW