George Bull 19 Jan 2017 12:25pm

Lessons must be learned from HMRC's Black Tuesday

Tuesday 10 January 2017 will go down in HMRC's history as the day when two scathing reports highlighted very different aspects of the Revenue's ability to plan for the future

Caption: George Bull examines whether the Revenue has bitten off more than it can chew.

The first of these relates to HMRC’s plans to move from 170 offices across the UK to 13 regional centres, supplemented by four specialist sites along with a headquarters in London.

On 10 January 2017, the National Audit Office (NAO) added its weight to concerns that HMRC has bitten off more than it can chew and has given itself an unmanageable peak of activity in 2019/20 if it is to meet its initial target completion date of 2020/21. Furthermore, the NAO says, the changes are unlikely to deliver the cost savings predicted by HMRC.

With plans far advanced, 5,000 job losses likely and contracts for new locations being signed up, it is too late for a major rethink of the plans to concentrate HMRC’s presence in so few offices. Instead, the NAO has secured HMRC’s agreement relating to changes of approach and timescale, which are intended to make the project manageable and aim to reduce the inevitable adverse impact on taxpayers during the period of upheaval.

Against this background, it is disappointing to see that the second report published on 10 January identifies the same fundamental weaknesses – including excessive optimism about benefits and an unrealistic timescale – in another major HMRC project. That project, initially called “Making Tax Easier” had morphed into “Making Tax Digital”.

In the March 2015 Budget, the then chancellor George Osborne heralded “the end of the tax return”. He promised new digital tax accounts, arguing that “tax really doesn't have to be taxing, and this spells the death of the annual tax return”.

But, when HMRC published a roadmap for these changes, it became clear for the first time that the new process would be mandatory for most businesses and was, among other things, intended to collect an additional £920m of tax between its start date of 6 April 2018 and 5 April 2021.

Six consultations later and with HMRC refusing to provide free software or training - and insistent on full implementation, including income tax, National Insurance and VAT, from 1 April 2019 - the House of Commons Treasury Committee decided to take a closer look at what was going on. In a document ordered to be printed on 10 January, the committee took the unusual step of publishing a report on a small part of its bigger inquiry into the project.

While the Treasury Committee supports HMRC’s overall aims, it is adamant that implementation should be deferred, arguing the Revenue has been overambitious in its planning, has not allowed sufficient time to test methodologies, has almost certainly overstated the benefits of the project and has hideously underestimated the impact on affected businesses. And then there’s the question of the changes which will have to be made to the UK tax system following Brexit.

 Hopefully the government will recognise the limitations of what HMRC can achieve in the time available, and appreciate the paramount importance of putting the interests of taxpayers first. Only with that recognition can these two major projects ever been implemented successfully.

Taking a broader view, much more careful feasibility planning is required before projects such as these can ever be announced again.

George Bull is RSM's senior tax partner