HMRC’s Digital Tax

HMRC’s Digital Tax Criticisms

"Industry experts and Accountants are cautious of HMRC drive to digitise the UK tax filling system. Lets look in to Criticisms and complaints about this change."

Recently many industry experts have criticised the government’s digital tax policy, claiming they were hoping to benefit from accidental overpayments by the general public. In this article, we will be going over the criticisms analysing their validity.

National Audit Office Criticisms

The criticisms levelled relate to the government efforts to digitise the tax filing system. The National Audit Office had reported that the HMRC’s staffing failures have cost customers over £33 million, potentially leading to almost three million people overpaying in taxes. Many industry experts have linked this to the HMRC’s inadequate handling of the move towards digital tax fillings. This highlights the concerns going forward of the Making Tax Digital initiative. The report comes at a particularly wrong time for the government as many ministers have made the expectation that the making tax digital program will raise £610 million a year by 2021, while also announcing plans to cut HMRC staff costs.

Some industry experts have claimed that the aforementioned digital tax switch plan, outlined by George Osborne in last year’s Autumn Statements, is essentially “fat finger tax”. They claim that the treasury is hoping to benefit from the general public overpaying in taxes due to mistakes when filling out forms online. Cormac Marum, a senior figure at the accounting firm Harwood Hutton, stated that trying to cut professional accountants out of the process will only lead to more mistakes for the general public when paying taxes. A senior partner at PWC Aidan Sutton indicated that the program would lead to significant risks in people overpaying on their taxes.

The treasury responded to these claims by implying that their expectations and cuts to staff costs were based on money raised by eliminating underpayments, instead of coaxing money out of taxpayer mistakes leading to overpayments. Though that being said, the latest National Auditing Office has highlighted the fact that “errors in online guidance” from the HMRC could potentially add to customer mistakes in both under and over tax payments. When a government auditor had checked the 51 questions on the online guidance for paying taxes digital made by the HMRC, the auditor found incorrect supporting advice on three of the questions. It was found that two of the mistakes in the online guidance having the potential for taxpayers to underpay £126,000 and £11,000 in tax.


National Auditing Office (NAO)

The NAO has found that the attempts to reduce staffing costs connected to customer service to divert funds to automated tax processing, had led to phone lines being understaffed. Which given the scope of the digital tax initiative would be highly detrimental. According to the NAO report on the quality of customer service offered by the HMRC had “collapsed” since 2015, with the average call times tripling in 2016. Further evidence that outlined the decline in quality of customer service offered by HMRC in the NAO report included the fact that costs incurred from customers in terms of time wasted when calling the HMRC tax helpline. Increased from £63 million in the 12-13 tax year to £97 million in the 15-16 tax year.

The HMRC have refuted these claims by stating that there was no evidence that its poor service had an impact on the tax revenues, using favourable focus group studies in which it was found that people wouldn’t commit tax evasion because of customer service. The Director-General for Customer Service, Ruth Owen responded “We recognise that early in 2015 we didn’t provide the standard of service that people are entitled to expect, and we apologised at the time. We have since fully recovered and are now offering our best service levels in years.”.

The OBR(Office for Budget Responsibility) have been sceptical of the Autumn Statement claims of how much money would be raised by switching to a digital-only format, given the estimates a “high” uncertainty rating. The estimated figures were £10 million in 28-19, £300 million in 19-20 and £610 million in 20-21.