The National Audit Office (NAO) has suggested HMRC must increase transparency and think more about users when moving to a digital tax system, if it’s to boost trust of its services.
While the auditor’s 2015-2016 report was relatively positive, a number of areas of concern were raised, such as continuing high levels of fraud in some parts of the welfare system and unanswered questions around its digital ambitions remain areas of concern.
HMRC has begun to implement its plans to transform how it administers tax, in line with its vision to have the most digitally advanced tax system in the world. By 2021, it expects to employ 16% fewer staff, substantially rationalise its estate and automate more of its processes. As a result, in the past year HMRC has made plans to invest more than £2bn on its transformation in the next five years; launched digital accounts for individuals; announced plans to close 137 offices and the location of 13 new regional hubs; and secured agreement for its plans to replace its IT services contract, Aspire, which it has revised to reduce the risk of carrying out too much change too quickly.
An NAO statement says that the HMRC’s approach looks credible and proportionate to the scale of the risks involved, and it has worked closely with the Treasury and Cabinet Office to develop and refine its plans. It is too early to evaluate how well its approach is working but one of the most critical tests will be how management responds when things do not go as expected.
The NAO has identified two areas of risk:
- Optimism bias in key assumptions – in the last Parliament, HMRC was over-optimistic about how much change it could deliver all at once, and how fast it could reduce demand for telephone contact in particular. This resulted in a collapse of its service to personal taxpayers in 2014-15 and the first half of 2015-16. HMRC has since recovered the quality of its service to personal taxpayers by recruiting more staff and has adjusted its future resource plans in the light of this experience.
- Understanding the costs and benefits to taxpayers – HMRC has yet to estimate the costs for individual taxpayers or businesses of making the transition to online services or to quantify the benefits they can expect. Over the next year, it plans to develop a fuller picture of what it will cost taxpayers to use the new systems. Most business customers will be required to update HMRC quarterly rather than annually about their tax affairs, and some may need to purchase new software that works with the new systems. Some businesses are sceptical of HMRC’s evaluations of the costs and benefits of previous changes to the tax system.
Fraud and error
The NAO’s analysis suggests that more still needs to be done by HMRC to use data and technology to reduce fraud and error.
HMRC estimates that overpayment of child benefit due to error and fraud was £170 million in 2015-16, or 1.4% of the total outlay, and £1.37 billion overpayments – 4.8% of the entirety – on the related benefit of personal tax credits. The main problem here, says the auditor, is out of date information, or an inability to collect the right information from claimants in time.
The NAO report can read in full here.
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