Will HMRC digital services get to where they need to be?

Author

Caroline Miskin, Senior Technical Manager Digital Taxation, ICAEW

Date published
July 16, 2024

Categories

HMRC service performance has been a hot topic for some time and has received considerable attention in mainstream media, at parliamentary committees and elsewhere. Professional bodies continue to receive feedback from members on a daily basis and have applied pressure where they can. The impact on professional firms of additional time spent resolving cases is serious for their businesses and there has been considerable damage to some client relationships.

Much of the focus has been on the problems getting through to HMRC helplines and delays in receiving a response to written correspondence. Much less has been said about the problems with, and gaps in, HMRC’s digital services.

The state of play

HMRC estimates that around 60% of transactions are now carried out digitally. However, adoption of digital services has not been fast enough to compensate for the reduction in HMRC’s budget and customer service staff. The rapid reversal of the March 2024 announcement of partial closures of the self assessment and VAT helplines, along with a degree of acknowledgement by HMRC that it was planning to reduce telephone support too quickly and was not bringing taxpayers and the tax profession with it, demonstrated that something needs to change. This was followed by the announcement of some funding to address the problems in the short term, however, the underlying problems remain.

One of the reasons for the slow uptake of HMRC’s digital services is likely to be that they have been developed in a piecemeal fashion and are not comprehensive or easy to find. Taxpayers need the reassurance that they can go to the app or their online account and do everything they would expect to – but that is not yet the case.

Another barrier is the identity verification steps that are required to access services – these are very necessary to ensure the security of taxpayer data but nevertheless they are a significant barrier. The introduction of the One Government login service, with the backstop of proving identity in person at a post office, should help in due course.

Digital services for agents have been allowed to fall well behind services for taxpayers and it is concerning that investment in the single customer account is not being matched by investment in agent services. Agent services continue to be accessed through two different agent accounts. Basic asks by agents include secure electronic communication and online services to request changes to tax codes and to withdraw tax returns – these are not anywhere close to being delivered.

Digital first

HMRC is unlikely to let up on its digital first strategy and will continue its drive to move more interactions online, particularly for taxpayers; HMRC acknowledges that most agents interact online where possible but unfortunately HMRC communications don’t generally make that point clear.

Digitalisation can never be the whole answer. There will continue to be a need for a telephone service and written correspondence – not just for those taxpayers who do not have the necessary skills to transact with HMRC digitally but also for more complex matters, including resolving problems with digital services.

Single taxpayer record on one platform

HMRC has set out its IT strategy for 2022-25. The task of modernising HMRC’s estate while continuing to keep the tax system functioning is an enormous one. Many of the improvements in digital services for taxpayers and agents depend on background work on legacy systems, particularly the painstaking work to move taxpayer records onto a modern enterprise tax management platform. This has been achieved for VAT records. As income tax self assessment (ITSA) taxpayers sign up to making tax digital, their records will also be moved on to the new platform.

However, there is currently no timetable for moving the rest of the ITSA records onto the new platform. Moving individual PAYE and national insurance records and corporation tax records is even further away.

The lack of a single taxpayer record limits the extent to which digital services for taxpayers and agents can be successfully developed. It is why we end up with anomalies such as capital gains tax reporting for UK residential property not being automatically linked with self assessment. What agents and professional bodies see as being simple changes that could be made often aren’t simple due to the complexity of making updates to aging HMRC legacy systems.

Will slow and steady achieve the ambition?

The work of the single customer account programme is promising but is slow and steady progress rather than a big launch. There is a reason why HMRC’s single customer account programme started its work with child benefit services for which there was no existing digital service – it is much easier to start with a clean slate.

Technology is continuing to advance at speed and HMRC will need to grapple with generative artificial intelligence and other technological developments. The question must be whether HMRC is ever likely to receive the investment required to meet its digital ambition while also continuing to run the tax system and support taxpayers. If it doesn’t, the impact of poor HMRC service performance on taxpayers, agents and the wider UK economy will continue. There needs to be a significant step up in investment and activity to improve HMRC digital services.