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? AccountingWEB.co.uk 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."
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I've been a journalist for four years, writing on a wide variety of topics from business and finance to travel, culture and celebrities. I began my career as an editorial assistant for Palladian Publications, a B2B publisher specialising in technical magazines for professionals in primary industries. I later moved into consumer magazines as a...