HMRC misjudged its digital strategy by reducing staffing levels before technical improvements were complete, according to the public spending watchdog.
The National Audit Office (NAO) said that the failure to embed new technology properly before headcount reductions were made led to a collapse in service quality during 2015.
It said that customers were often left waiting on hold for more than an hour, although the NAO said services have subsequently improved following the recruitment of additional staff.
HMRC job cuts: majority of 200 at-risk staff "facing compulsory redundancy"
HMRC seeks to reassure MPs over switch to digital tax system
Taking the Pulse of Digital Transformation: A Progress Report
Amyas Morse, head of the National Audit Office, said: “HMRC’s overall strategy of using digitally enabled information to improve efficiency and deliver service in new ways make sense to the NAO.
“This does not change the fact that they got their timing badly wrong in 2014, letting significant numbers of call handling staff go before their new approach was working reliably.
“This led to a collapse in service quality and forced a rapid expansion of headcount.
“HMRC needs to move forward carefully and get their strategy back on track while maintaining, and hopefully improving, service standards”.
The NAO report said that HMRC cut staff working in personal tax from 26,000 to 15,000 between 2010-11 and 2014-15.
The tax authority's strategy involved increasing automation of the PAYE system, operating on a more flexible basis so staff could move between different services, and moving customers online.
It then introduced automated telephony and paperless self-assessment processes in 2013/14 – but demand for telephone advice did not fall.
Despite this, in order to meet its budget, it released 5,600 staff from its personal tax operations.
The report said: “HMRC believes it was over-optimistic about the cumulative impact of the change and had not built sufficient contingency into its plans.”
After average waiting times tripled, HMRC was forced to recruit another 2,400 staff to its taxes helpline in autumn 2015.
Responding to the report, Ruth Owen, HMRC’s director general for customer services said: “We recognise that early in 2015 we didn’t provide the standard of service that people are entitled to expect and we apologised at the time. We have since fully recovered and are now offering our best service levels in years.
“Over the past six months we’ve consistently answered calls in an average of less than six minutes, and have launched new online tax accounts and webchat for everyone, enabling customers to manage their tax affairs wherever and whenever they want.”
The NAO's findings were seized on by the Public and Commercial Services (PCS) union, whose chief Mark Serwotka said the cutting jobs at the tax authority had "damaged the service provided to taxpayers".
The union general secretary added: “HMRC is a textbook case of how good quality public services need investment not more cuts, and how austerity all too often ends up costing more than it saves.”