HMRC avoids reform, shifting risks to businessby
Following on from the digitisation of VAT and PAYE, Bill Mew asks if the complexity of HMRC’s Making Tax Digital strategy has been allowed to get out of hand.
For years the Government Digital Service (GDS) has been encouraging large government departments to migrate away from inflexible legacy systems that are difficult and expensive to maintain. It has also wanted them to avoid long and inflexible contracts with an oligopoly of large IT services firms. However, the nirvana of flexible, cloud-based systems and smaller, more innovative suppliers always appears to be just out of reach.
HMRC’s five-year Securing Our Technical Future (SOFT) programme was meant to move services and data away from three Fujitsu-run datacentres and into the cloud. Yet the Fujitsu contracts were recently extended by three years, as were many other large contracts across the rest of government, with uncertainty over Brexit often cited as an excuse.
However, now that the Prime Minister has succeeded in getting Brexit done, the continued inertia begs the question: is there a coherent modernisation strategy at all?
Ideally, taxes need to be simple, fair, transparent, easy to report and collect, and hard to avoid. If as much of this can be automated then we all stand to gain. We need to start by simplifying the tax system at a policy level. Then we need HMRC to ditch its legacy systems and move to a cloud-based system that has the flexibility to adapt to ongoing changes in policy and provides simple Application Program Interfaces (APIs) to allow for easy integration.
“Making Tax Digital - starting with VAT
SOFT began relatively well with a move to transform the way that VAT was reported. While introducing efficiencies and reducing costs for HMRC, much of the reporting burden was passed to companies. Software providers successfully integrated VAT reporting functionality into their applications by using a simple API to integrate with HMRC.
HMRC moved onto real-time information (RTI), with employers and pension providers needing to tell HMRC about PAYE payments at the time they are made as part of their payroll processes. Again, this was a relatively simple API integration, but more of the reporting burden was passed to companies.
The focus has since expanded to the Making Tax Digital programme for personal and company tax reporting. This next step will entail hundreds of APIs and a significant level of complexity.
Passing the buck
Unfortunately, the further that HMRC goes without transforming its own systems and simplifying the processes and infrastructure, the more complex the process will be. Continuing to transfer more of the burden to others, without the necessary transformation and simplification, could make the whole process too onerous and the overall project risk too great.
What was supposed to be a digital transformation program appears to be a push for digital without the necessary transformation within HMRC to address legacy and complexity issues.
This is symptomatic of a wider problem across government. Few government departments have succeeded in truly migrating away from their legacy systems and there is a complete lack of interoperability. This is because there is no government-wide data architecture, unique identifier or standard for identification.
The NHS uses your NHS number. DVLA uses your driving licence number. The Home Office uses your passport number. At the same time, DWP is working on a Dynamic Trust Hub to check your identity, while many other departments use GOV.UK Verify.
Meanwhile, HMRC continues to use National Insurance numbers and UTRs (Unique Tax Reference codes) with Government Gateway as a log-in mechanism. This is if you are an individual, as there is another system entirely if you are an organisation. Thus your accountant has to use one mechanism to submit your personal tax return and another to submit your company one.
The talk of introducing vaccine passports could overlay yet another government system with its own unique identifier and log-in mechanism.
The government is currently running a “discreet pilot” of a successor to Verify. If adopted by HMRC and others, this could provide an effective national digital identity system. In theory, government departments could then allow limited query access in much the same way that hire car firms are already able to query the DVLA database to check that you have a valid driving licence.
In its commentary on HMRC's 2019-20 annual accounts, the National Audit Office (NAO) found that cost-cutting measures at HMRC had resulted in IT systems that “constitute a significant risk to the department.” The HMRC IT systems are deemed to be vital to its ability to perform functions. The risk to these systems will become particularly acute as it continues its move towards a fully digital tax system. Those with knowledge of difficulties with other major government projects, like the universal credit benefits system, remain concerned.
The software firms that were able to adapt their applications to integrate with the HMRC APIs for VAT and PAYE and going to find integrating over a hundred HMRC APIs far more challenging. The few firms that actually succeed in doing this will not only be seeking to recoup significant costs, but may find themselves in an oligopoly where they can charge us far more than it cost.
Who’s in charge?
Governments are well known for being short-termist, never looking further than the next election. This is exacerbated by the fact that seniority and longevity in government IT leadership roles are limited. Overcoming the departmental fiefdoms takes both experience and seniority. Not only have many of the most experienced hands left the public sector, but those in senior IT roles struggle to effect change as such roles last only two years - far shorter than in the private sector.
Appreciating the cumulative impact of HMRC’s complexity takes deep understanding. Plotting a path to overcome it, while minimising the overall cost and risk for all, will take real vision. And making it all happen would require long-term strategic leadership.
Post-Brexit, there is both a need and an opportunity for real digital transformation in government. It is all too easy blame Brexit for much of the recent transformational inertia and to apply short term fixes such as vaccination passports to address some immediate challenges. Putting off the need for digital transformation and passing the burden onto companies is not the answer.
We need bold leadership, cross-party political backing and longer-term strategic planning to drive real digital transformation in government if we are to regain the position that we once held at the top of the UN ranking for e-government. HMRC needs to be an example of how to do this right, not of how to amplify cost and risk and pass it all on to others.
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