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HMRC avoids the looming axe in Spending Review

20th Oct 2010
Deputy Editor Sift Media
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HMRC was spared any large scale spending cuts in the government's Comprehensive Spending Review, but the department is expected to make efficiency savings of 25% through enhanced use of new technology.

In his Commons speech, George Osborne confirmed plans to invest £900m to address HMRC's tax gap and tackle avoidance and evasion, a measure the chancellor claimed will bring in an additional £7bn a year in tax revenues by 2014-15.

While giving with one hand, however, the chancellor applied pressure with the other, demanding that the department makes overall resource savings of 15%, with efficiency savings of 25% to come from rationalising technology investments and maximising savings from IT contracts.

Osborne said the department would invest in new technology to "improve risk assessment capability, better join up taxpayer information and streamline internal processes."

He also insisted that savings would be made by renegotiating IT and other procurement contracts, and that administration costs would be chopped by a third through reductions in corporate services and back office support functions.

The chancellor also announced £100m of investment to improve the operation of PAYE for both employers and individuals. This news follows the publication of a recent discussion document detailing new proposals to reform the system, including the implementation of real-time data submission and centralised deductions, where HMRC would calculate the tax and NICs due on an employee's income. The PAYE system came under fire last month after reconciliation backlogs and an avalanche of erroneous new records came to light in the wake of the department's transition to the new NPS computer system.

The Spending Review also contained a commitment to delivering £8bn of tax credit fraud and error savings by 2014-15.

Analysis and reactions - can the IT systems cut it?
But senior accounting figures warned of the risk of over-stretching the system. Given previous problems, can HMRC squeeze 25% efficiency savings out of its existing systems, pondered CIOT tax policy director John Whiting. "The worry is that it isn't starting from zero, it's starting from a 25% cut when viewed in the context of the trims it's already had to do over the last five years. There has already been a very significant cut in manpower at HMRC," he said.

"The targets are predicated on IT investment delivering. The worry is that it will lead to reduced services for the unrepresented and more things being pushed onto the taxpayers and advisers. Hopefully HMRC will engage with tax advisers to work out how this can be delivered because, as Osborne said, we're all in this together."

ICAEW chief executive Michael Izza echoed this view. "At a time of fiscal austerity, the government should not compromise its ability to collect revenue. I would not want further cuts to its budget to undermine this," he said.

"The chancellor's assertion that this investment of £900m could raise an additional £7bn will be met with a large dose of scepticism. Previous initiatives and amnesties such as this one have tended to fall far short of their targets."

Ronnie Ludwig, a partner at top 20 chartered accounting firm Saffery Champness, noted the unfulfilled expectations of the 2007 Offshore Disclosure Facility, which raised approximately £500m for the public purse rather than the £1.75bn initially predicted by the government.

"Most government departments will be looking to IT to rationalise back office functions, streamline processes, move more interactions online and as a consequence reduce cost and improve efficiency," commented Richard Anning, head of the ICAEW's IT Faculty.

"The 15% reduction at HMRC through the better use of new technology and greater efficiency covers both back office functions but more importantly moving more interactions online, through the greater use of electronic filing driven by the Carter programme - such as the new iXBRL corporation tax filing coming in April next year. In getting returns in quicker and more accurately, HMRC will be able to make greater use of analytics to highlight which areas need more investigation," he added.

In attempting to meet the rigorous targets set by the chancellor, government departments could be considering the use of shared processing centres and transferring more systems onto the Cloud in the coming months, Anning said.

With this renewed focus on systems, will HMRC risk losing its human face? put this question to Anita Monteith of the ICAEW’s Tax Faculty.

"That is a problem. HMRC is having to catch up because it's using its existing workforce to solve all the problems it has at the moment. For example, vast numbers of staff are still sorting out PAYE problems and while they're doing that they can't answer the telephones, which makes it harder for people to get through to them.

"They will be able to make some progress but the sticking point is always compulsion. If you mandate people to make change then it will always be fine for some and not for others - and that could be a problem with payroll. As long as HMRC understands who it's aiming at when it makes these dramatic changes, it will make progress."


Replies (6)

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By Simon Sweetman
20th Oct 2010 15:10

£900 million

So how do you deploy that £900 million to close the tax gap ?  You need - must need - well trained people. It takes four years to train what we used to call a fully-trained inspector - maybe you could cut that. HMRC has not got trained people about it undeployed : that's why the forecasts are optimistic.  

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By Simon Sweetman
20th Oct 2010 15:12

new technology

Oh yes, a 25% saving through enhanced use of new technology ??  Scrap jobs, install computers ?  That's been the approach over the last few years,  and it doesn't work.

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By cymraeg_draig
20th Oct 2010 15:47


Will this £900 million be spent on tackling serious fraud (a few politicians and political doners come to mind), or, will it be invested in harassing and threatening already hard pressed small businesses pushing them into bankruptcy ?

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By mydoghasfleas
21st Oct 2010 11:51


I love the spin.  It is not spending it is investing.  Is this a one off amount that will pull in a one off amount, or is it the total amount over a number of years?

How much greater would the return be if the money was spent on getting the little things right?  The public would have some faith in HMRC, which at the moment has less credibility than the Flat Earth Society. 

If its systems worked, it would have considerable numbers of staff within its own ranks who would not be fighting fires and manning complaint handling teams. 

If it dropped its PR staff writing mission statements and kept on some of the experienced Inspectors, it would have credible people to deal with evasion.  Instead the credible people are paid off because they are "too expensive".

The problem is that it seems to have managers who do not manage, leaving the staff at the sharp end unlead and opinions ignored.  The call handling system means too much distance between case workers and public contact.  Recent experience has shown where partnership and personal returns are under enquiry one case worker is not even aware of the other.  It is pointless throwing away money for a new initiative, when it will simply redeploy the deck chair attendants to stoking the boilers on HMRC Titanic.



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By aburt01
21st Oct 2010 11:55


I have to disagree.  Computers have made more and more possible.

I am now able to go online, complete my own self assessment, complete my own company returns and no further cost to hmrc and saving me potentially hundreds of pounds.

I know my return has arrived, not lost in the post, and their system will now compare all my employments.

If this is replicated over the next few years, their investment will have been worthwhile.

They can start hopefully, to focus on dishonest/missing returns, whilst I relax, knowing job well done.

Yes, I am biased, I work for a software company.

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Tom McClelland
By TomMcClelland
21st Oct 2010 11:56

£100 million for new IT systems for PAYE?

That is a fraction of what I'd expect even phase 1 of their proposals (Real Time Information) to cost them.

And the cost of implementing phase 2 (centralised deductions) would be a couple of orders of magnitude greater.

I wonder if that £100 million is a finger in the air, or a properly costed proposal for delivering all the design, development, infrastructure, training, testing, liaison for phase 1 within the planned timescale (April 2012). It seems like a remarkably round number. Bear in mind that even phase 1 involves completely changing how every employer in the land handles starters, leavers, and HMRC reporting requirements. It involves changing all the website pages and paper publications that instruct employers. It involves dealing with the thousands of organisations that write payroll software to make sure that everyone is going to be ready on time. It involves making sure that every employer in the land is ready for the new systems at launch...

Then, in order to implement the greatly more complicated phase 2 all the work done by HMRC and UK payroll software suppliers to implement phase 1 would have to be thrown away. Possibly after just 3 years of usage according to the proposed timetable.

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