The recently published report, Progress with Making Tax Digital, which digs into the efforts surrounding the development of the scheme, outlines that it’s now costing £1.3 billion up from the initial forecast of £226 million.

Making Tax Digital, which was first announced in 2015, aims to help modernise HMRC’s systems for VAT, corporation tax, and self-assessment income tax, requiring businesses and self-employed individuals to keep digital records via software and submit them online each quarter.

However, the scheme has faced numerous delays, with it being pushed back four times since its announcement in 2015.

NAO’s report has found that HMRC’s original plan to introduce Making Tax Digital by 2020 was “unrealistic,” and “did not allow sufficient time for HMRC to explore the full range of options that would achieve the programme’s aims and select one that it could implement.”

With the latest estimated cost of introducing Making Tax Digital being £1.3B, it marks a 400% increase in real terms since 2016. By March 2023, £642M had already been spent on the scheme.

Additionally, the report relays that there is set to be around £1.5B in upfront transitional costs from business taxpayers with incomes over £10,000 to comply with Making Tax Digital.

Despite the challenges, HMRC still expects the scheme to generate a positive return on investment, estimating a £3.9B in additional tax revenue by helping to drive down taxpayer errors.

On the report’s findings, Gareth Davies, the Head of the National Audit Office, said: “The repeated delays and rephasing of Making Tax Digital 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.

“Our audit identified the omission of significant costs from some business cases. It is obviously important that business cases for major programmes such as this contain all the relevant information to support decision-making.

“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.”

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The NAO says that HMRC’s ability to secure value for money now depends on “developing a more robust business case exploring the options for progressing MTD, resolving questions about design, and rigorously managing risks to delivery.”

In response, the Office suggests that HMRC undertake a series of actions, including reassessing its existing delivery plan to test whether it’s realistic and offers the best value for money, and developing plans for how it will help taxpayers prepare for Making Tax Digital, with a focus on those who are less digitally proficient.