Public Services > Central Government

NAO outlines digital tax service risks facing HMRC

Neil Merrett Published 14 July 2016

Auditor says department’s approach to programme transformation is credible, but adds it must ensure public confidence in online services being developed


HM Revenue and Customs (HMRC) is failing to fully estimate the costs for individual taxpayers and businesses of transitioning to online services or outlining the potential benefits they may receive from doing so, according to the National Audit Office (NAO).

In analysis of the department’s accounts for 2015/16, the auditor has set out two key risk areas around transforming the administration of tax services to try and create the world’s most “digitally advanced” system.

Along with trying to better understand costs and benefits, a failure to address a previous over optimism with regards to delivery targets and reducing demand for telephone support services has been identified among key concerns to transformation in the report.

“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,” said the NAO.

“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.”

According to the NAO’s findings, the current HMRC strategy is focused on a 16% reduction in staff as part of efforts to cut down its overall estate and rely on more automated processes.

“In the past year HMRC has made plans to invest more than £2bn on its transformation in the next five years,” noted the report.  “[It has] 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.”

While the auditor said it was too early to determine how successful HMRC’s approach had been with regard to digital tax services, the strategy was viewed as both credible and proportionate on the back of its work with the Cabinet Office and Treasury over these plans.

The report also noted that HMRC has committed over the coming year to develop a clearer insight on the potential costs to taxpayers of using its new digital 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,” said the report.  “Some businesses are sceptical of HMRC’s evaluations of the costs and benefits of previous changes to the tax system.”

However, ensuring public trust in its new systems was viewed by the NAO as a vital component of efforts to overhaul digital tax accounts so that services are both easy to use and secure for individuals.

Data was seen as an important component of this digital focus as HMRC’s moves to have its information increasingly digitised and integrated, requiring a clear focus around protection and limiting the potential for cyber attacks.  This likely includes the use and ongoing development of Whitehall’s GOV.UK Verify common identity assurance platform, which is anticipated to be used exclusively to allow individuals, rather than business customers, to access HMRC online tax services.

“HMRC is therefore investing resources and expertise in making its data more secure and ensuring access to sensitive tax data in particular is safeguarded,” said the NAO. “It must also demonstrate to taxpayers that its controls to verify each taxpayer’s identity and protect the confidentiality of data are working effectively.”

According to the NAO, £536.8bn was raised in tax revenues over the course of 2015/16, up by 3.7% - the equivalent of £19.1bn - over the same time the previous year.  In terms of benefits and credits, £40bn was spent by the authority, amounting to a fifth of its total benefit expenditure.

Auditor general Amyas Morse said that the department was running a “complex and challenging” set of change programmes, while trying to provide services required by tax payers.

“On the one hand, it needs to keep its nerve and commitment to its goals even if there are occasional setbacks along the way; on the other, it needs to ensure that it does not make the taxpayer underwrite the risk of failure through service breakdowns,” he said.

The NAO findings also looked at efforts to address fraud and error in delivering Child Benefit, citing the re-platforming of IT systems used in administering the payments.  The existing systems are said to have been used for several decades, according to the report.

A process to transfer from the existing legacy systems to the new technology is expected to commence from August 2017, with work underway on a new digital service plan to allow for online applications.

HMRC has claimed that changes to Child Benefit will allow for the inclusion of more robust prevent and detect controls in the new system as a means to better overcome fraud and error.

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.