HM Revenue and Customs will need to reassure the public that its new online systems are easy to use and secure – and management’s response when things do not go as expected will be a critical test of the department’s digital strategy, according to the public spending watchdog.
HMRC outlined its “Making Tax Digital” programme last December, but a series of consultations setting out detailed plans was delayed because of the EU referendum. Tax practitioners have expressed concern that the continued delay is increasing uncertainty for businesses, and some tax experts have called for the timetable to be reset.
A new report on HMRC’s accounts by the National Audit Office said the whole organisation will need to be transformed if it is to achieve its aim of becoming once of the most digitally advanced tax administrations in the world.
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“HMRC is running a complex and challenging set of change programmes, and aiming to maintain service to taxpayers at the same time," Amyas Morse, head of the NAO said.
"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."
HMRC expects that by 2020 nearly all customers will maintain tax records online, with face-to-face and telephone support available for those who need it. Most businesses will provide HMRC with quarterly updates via a digital tax account.
"HMRC needs to keep its nerve and commitment to its goals even if there are occasional setbacks along the way" – National Audit Office head Amyas Morse
But the NAO warned of the risk of “optimism bias” in the main assumptions underpinning HMRC’s strategy. Past experience showed there were “serious risks” should those assumptions prove unrealistic, the watchdog said.
In May, the NAO warned that the sustainability of HMRC’s planned cost reductions would depend on the success of new digital services in reducing demand for telephone and postal contact.
However, HMRC has not yet estimated the costs and benefits to taxpayers arising from the transition to online services.
Some businesses may need to buy new software, the NAO noted, while the business community is sceptical of HMRC's evaluations of the costs and benefits of previous changes to the tax system, such as real-time reporting of PAYE information (RTI).
While HMRC has reduced marginally its estimate of annual savings to businesses, some businesses doubted that RTI had reduced their costs at all.
HMRC plans to develop “a fuller picture” of what it will cost taxpayers and businesses to use the new online systems over the next year, the NAO reported.
"Steep implementation curve"
Brian Palmer, tax policy adviser at the Association of Accounting Technicians (AAT), told CSW that if the delay in publishing detailed consultations continues, HMRC might have to consider delaying implementation by 12 months.
“A fully-informed consultation process is an essential component for MTD’s success,” Palmer said.
“AAT remains fully supportive of the move to digital, but with every passing day we grow increasingly concerned that an already steep implementation curve becomes ever more sheer.”
Palmer noted that the EU referendum result and last week’s cabinet reshuffle were “just the most recent reasons preventing the publication of six MTD consultation documents”.
Now, with parliament in recess, there is “a slim prospect” of the papers emerging by the end of this month, he suggested.
"With every passing day we grow increasingly concerned that an already steep implementation curve becomes ever more sheer" – Brian Palmer, Association of Accounting Technicians
Palmer acknowledged that such a delay would “slow HMRC’s closure of the UK tax gap”.
The government has argued that digital accounts will reduce the scope for taxpayer error.
“However, that cost would be more than offset by the additional taxpayer compliance that would arise from affording stakeholders an appropriate amount of time to debate and influence the potential impact of the most seismic of changes to the UK tax system since the introduction of self-assessment,” Palmer added.
“Ultimately, it is vital that people and businesses understand what MTD will mean for them. I hope that as an outcome from the consultations MTD will not be mandated, for those adversely affected, until broadband coverage in the UK is entirely robust and fit for purpose.”
In May, the Association of Taxation Technicians called on HMRC to postpone the introduction of quarterly digital reporting by at least a year.
It warned that the simultaneous release of consultations that were originally intended to be staged would restrict the time available for interested parties to respond fully, given HMRC’s intention to launch a public testing phase by April 2017.
Customer service
HMRC’s own published assessment of progress in improving customer service, measured against the principles in its revised “Your Charter”, notes that more than two million people are now using the online personal tax accounts introduced last December, and a business tax account is now available to 5.4m businesses.
During 2015/16 HMRC says it provided online guidance via 257,000 webchats, and a new virtual online assistant received 1.8m “interactions”.
HMRC said future work on the transformation would deliver a seven-day service by April 2017, “further improved” online and telephone services with reduced call answering times, a new secure email service operated through the online tax accounts, and a dedicated telephone line and online forum for start-up businesses.
The organisation says it has also improved the tax credits renewals process by “further developing our digital channel” and building on a more flexible approach to helplines.
It reported that in 2015, 754,900 tax credits customers renewed their claims online, almost double the 2014 figure.
Half of those who renewed online did so using a mobile phone or tablet, HMRC added. Customers can now view online the amount and date of their next payment of tax credits.
HMRC plans to report later in the summer the findings of an annual customer survey to measure performance against the various elements of the charter.
Last week’s report points out that a subset of results from individuals, small businesses and tax agents showed that tax agents, who have more regular dealings with HMRC, are “generally the least positive”.
HMRC says it wants to provide a helpful, efficient and effective service to the public. The survey suggests that 63% of small businesses but only 26% of tax agents agreed that the time taken by HMRC was “acceptable”. Two-thirds of businesses, but only 51% of tax agents, agreed that the quality of information provided by HMRC is “good”.
Responding to that report, the ICAEW Tax Faculty noted that tax agents “rank HMRC much less highly” than individuals and small businesses do. While agents have most knowledge of how HMRC is working in practice, the statistics remain a cause for some concern, the Faculty said.
Reshuffle
Jane Ellison (pictured), the new financial secretary to the Treasury, has taken over responsibility for HMRC following David Gauke’s promotion to chief secretary last week.
Ellison, a former minister at the Department of Health, also assumes responsibility for strategic oversight of the UK tax system and “European and international tax issues” as controversy continues to surround the taxation of large multinationals.
At Treasury Questions in the Commons this week, Ellison told MPs that she was “really proud” of the role that the UK had played in recent years, “driving fundamental reform” of international rules and standards.
Ellison was asked to consider using the current Finance Bill to introduce a measure requiring large multinationals to publish country-by-country reports of their profits and taxes.
“The key thing is that that has to happen on a multinational basis,” she replied, adding that transparency would be on the agenda at this weekend’s meeting of G20 finance ministers in China and “we will have more to say about it”.