Parliament’s Public Accounts Committee (PAC) has urged HM Revenue and Customers (HMRC) to improve its technology to take advantage of the opportunities presented by AI.
It has raised the point within a new report on HMRC’s progress in simplifying the tax system, saying it has made slow progress and needs to set out realistic plans, including to speed up the deployment of digital technology to benefit customers and reduce costs.
Publication of the report follows criticisms of the performance of digital services at HMRC, sounded by the National Audit Office (NAO) in February.
The new PAC report repeats the NAO’s observation that HMRC’s main digital programme – Making Tax Digital (MTD) – is generating additional tax revenue but also imposing additional administrative costs on taxpayer.
It says the department has failed to place taxpayers’ needs and preferences at the heart of changes to the tax system. 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 £300 million for businesses paying VAT over the period 2019-20 to 2023-24.
Costs exceeding savings
The future extension of MTD to income tax self-assessment is set to impose further transitional costs for some taxpayers, with the ongoing costs of MTD to exceed ongoing savings by around £200 million each year.
On a broader scale, the costs of tax collection increased by £563 million (15%) in real terms over the period 2019-20 to 2023-24. Meanwhile, HMRC’s compliance productivity has fallen, with returns declining from over £1.4 million per compliance worker pre-pandemic, to £1.27 million in 2023-24.
The PAC highlights the potential for AI and other new technologies to improve HMRC’s productivity and services, but says the department’s out of date tech will constrain its use, while making it more vulnerable to the use of AI by bad actors.
This requires it to modernise its systems to use the technology effectively in providing better services.
Need for trust and confidence
Chair of the committee 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.
“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.
“The report makes clear that it will cost self-assessment taxpayers £200 million more than they save, and this is completely intolerable.”
