HMRC is a “lumbering dinosaur” say MPs
As tax collection costs continue to rise HM Revenue and Customs (HMRC) has been branded a “lumbering dinosaur.”
A report from an influential group of MPs says HMRC’s attempts to transform its services through Making Tax Digital, while generating extra revenue, have imposed hundreds of millions in extra costs on the taxpayer, with more to come.
Sir Geoffrey Clifton-Brown MP, who chairs the House of Commons Public Accounts Committee (PAC), said: “The report makes clear that it will cost self-assessment taxpayers £200m more than they save, and this is completely intolerable.”
The PAC report calls for realistic plans to simplify the tax system and for HMRC to quickly address the decline in trust taxpayers have in it.
The costs of tax collection increased by £563million (15 per cent) in real terms over the period 2019-20 to 2023-24, with 240 tax policy changes announced in the years 2022-24.
HMRC’s compliance productivity has fallen, with returns declining from over £1.4m per compliance worker pre-pandemic, to £1.27m in 2023-24. This decline took place despite HMRC employing more senior staff, which added over £100m to its salary costs from 2019-20 to 2023-24.
The PAC report also says that trust in HMRC has also fallen among large businesses, small businesses, agents and individuals and it needs to work with taxpayers to quickly address the decline.
The committee of MPs has also called on HMRC to make sure it is well-placed to capitalise on the opportunities presented by the technology.
It says that AI has the potential to improve HMRC’s productivity and services – but its report finds that HMRC’s out of date tech will constrain its use, while making it more vulnerable to the use of AI by bad actors.
The committee also urges HMRC to build taxpayers’ needs into how it designs its systems, stressing the utmost importance of learning from the rollout of flagship transformation programme Making Tax Digital (MTD).
It says MTD was imposed without much consultation on businesses, who did not know what the administrative costs would be.
These came to an estimated net additional cost of £300m for businesses paying VAT over the period 2019-20 to 2023-24.
The committee says it warned in 2023 that HMRC had lost sight of needing to put taxpayers at the heart of changes to the system, and finds no strong evidence to suggest productivity improvements or other benefits for most VAT traders following MTD’s introduction.
Sir Geoffrey Clifton-Brown said: “HMRC needs to do much more to restore trust and confidence in its taxpaying consumers.
“The cost of its systems rising, trust from taxpayers declining, and a system of ever-growing complexity – the challenges on day one for the new incoming chief executive of HMRC are clear.
“It is time for HMRC to prioritise modernising its own systems so that it is fit to enter the second quarter of the 21st century. The potential for new technologies such as AI to augment HMRC’s efforts to tackle these issues is clear, and HMRC must move at pace to seize the opportunities it presents”.
He added: “It is truly frustrating to see how much of its business the tax authority still does by post. Customers at the moment are forced to engage with an authority that is frankly a lumbering dinosaur.
“HMRC’s attempts to transform its services through Making Tax Digital, while generating extra revenue, have also imposed hundreds of millions in extra costs on the taxpayer, with more set to come.”
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