Treasury delays programme to digitise tax system for two more years

Employees who have been claiming “Home Office Relief” during the Covid 19 Lockdown should be urgently reviewing their tax codes to clarify whether HMRC have included the relief within their notice of coding.

The biggest changes to personal taxation in a quarter of a century are to be postponed for a further two years because the computer systems are not ready, triggering concerns that the government is set for another costly public sector IT disaster.

The Treasury is to postpone its programme to digitise the tax system — which would have forced 4.2 million self-employed workers and small businesses to file tax returns multiple times a year — from April 2024 until 2026.

The intention to launch the multibillion-pound programme, called “Making tax digital”, was first announced by George Osborne in the spring budget of 2015.

In the most significant change in the programme, anyone with annual income of more than £10,000 would have to keep accounting records digitally and then file quarterly updates to HMRC using new software, instead of the single annual update they do at present. HMRC believed this would make people declare their income more accurately and pay tax more frequently, vastly reducing the £32 billion that the department claims is underpaid in tax each year, 5.1 per cent of the country’s annual tax bill.

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However, in September last year, it was announced that the deadline for its introduction would be postponed for 12 months from April 2023 to 2024 because IT systems were not ready.

Then on Wednesday afternoon, the official departmental page for the programme was changed. It said: “The dates for helping HMRC test and develop Making Tax Digital for Income Tax have been extended to 6 April, 2026.”

This update was removed within minutes, with an HMRC source admitting that an official had jumped the gun by misreading the embargo of the announcement.

Three big accountancy firms have, however, confirmed that they had been told that the move to 2026 was going to be announced shortly.

Nimesh Shah, chief executive of Blick Rothenberg, said the lack of HMRC preparation for the introduction had been “shambolic”, adding that no pilot had been carried out to test the software.

He also complained that, since Osborne’s 2015 announcement, no costings had been published for the project, which he suspected had cost billions of pounds to develop with huge overruns.

Paul Falvey, tax partner at the accountancy firm BDO, said it was “very disappointing for a critical element in modernising our tax system to be further delayed”.

Claire Roberts, a partner at Moore Kingston Smith, said the department had had no choice because of the lack of preparation. “A delay is essential to properly address the issues being raised and alert taxpayers to the mammoth changes coming down the track.”

An HMRC spokeswoman apologised for details on the government website being “mistakenly changed”. She would not comment on the timing of any announcement.

She referred The Times to comments by Jim Harra, chief executive of HMRC, to the House of Commons public accounts committee last month, in which he said the 2024 deadline was “under review” because it was “quite pressured, both internally on HMRC being ready, but also the external readiness of software houses and small businesses”.