The cost of running digital tax systems cost HMRC around £785 million in the 2023-2024 tax year, an increase of 18 per cent compared to 2019-2020, according to the National Audit Office (NAO).

Overall, the cost of collecting tax increased by 15 per cent, or around £563 million in real terms between 2019 and 2024.

In a new report, the public spending watchdog said that HMRC also spent more time and money than expected on new digital systems and upgrading legacy systems in the 2023-2024 tax year, £482 million over the 12-month period.

HMRC has one of the largest and most complex IT systems in the UK, with NAO suggesting that it faces a significant challenge in modernising its IT infrastructure to keep pace with changing technology.

HMRC has also faced increased costs of compliance work, which helps to reduce fraud and errors in the tax system.

The report found that there were also added costs from investing in recruiting higher-skilled staff, which added over £100 million to salary costs.

The NAO recommended that HMRC take a holistic view of the cost effectiveness of the tax system, calling on it to clarify estimated costs and benefits when placing increased requirements on taxpayers.

The watchdog added that HMRC should commit to reducing administrative cost burdens on customers, develop better efficiency and productivity measures, and gain a clearer understanding of the costs and benefits of activities that stop non-compliance from occurring in the first place.

“Businesses and individuals deserve a modern, resilient and effective tax system to help them get their tax right first time,” said Gareth Davies, head of the NAO. “To get the most out of the money it spends on collecting taxes, HMRC must better understand how changes to the system affect the costs it incurs in administering taxes, as well as the financial burden on individuals and businesses.”

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