UK's Making Tax Digital system will backfire by driving away taxpayers and reducing revenue
Source: Joseph Addington. "The UK Treasury’s Big New Idea: A Tax On Paying Taxes - The American Conservative." March 20, 2026. www.theamericanconservative.com
The Gist
The UK government created a new tax filing system that makes people report their taxes five times a year instead of once, but it's so complicated and expensive that many taxpayers are just quitting, retiring early, or leaving the country. The government will lose more money than it gains because the system costs more to run than it brings in.
Conclusion
The UK's Making Tax Digital (MTD) tax reporting system will ultimately cost the Treasury money rather than generate the claimed £780 million in additional revenue
Premises
- MTD forces self-employed taxpayers to file complicated computerized accounts five times per year instead of once, creating excessive bureaucratic burden
- The system costs taxpayers £320-1,650 annually in software and accounting fees just to comply with filing requirements
- MTD generates no additional tax revenue since the total income reported remains the same whether filed once or five times per year
- The claimed £780 million in extra revenue comes from fines on confused taxpayers who can't comply, not from discovering unreported income
- Many taxpayers are responding by retiring early, reducing business hours, working for cash, or emigrating to avoid the system
- The system cost £850 million to implement and will cost £1.3 billion total, exceeding the projected revenue gains
- Prominent examples like novelist Lionel Shriver emigrating to Portugal demonstrate taxpayers are willing to leave rather than comply
Assumptions
- Taxpayers will respond rationally to increased compliance costs by reducing their tax exposure
- The primary motivation for MTD is revenue generation rather than improved tax administration
- Government cost-benefit analysis should prioritize net revenue over gross revenue collection
- Excessive bureaucracy drives away productive economic actors