HMRC has launched its new system of personal online tax accounts amid real scepticism from advisers over the UK tax authority’s ability to deliver on its goal of becoming one of the most digitally advanced tax administrations in the world
The new system – which will eventually replace annual tax returns and will be adopted by millions of individuals and businesses – is one part of a radical overhaul that will see the taxman slash hundreds of jobs and plough £1.3bn into digitally transforming the way it administers tax.
HMRC is committed to making £717m of sustainable resource savings a year by 2019/20 with the cumulative savings offset, in a sense, by its digital reinvestment. At the same time, the taxman is to close 137 local offices by 2027 which it will replace with regional centres and has earmarked a headline 21% reduction in baseline resource costs through digitization.
How these changes will affect HMRC’s much-maligned levels of ‘customer service’ – so bad that parliament now considers it to have “an adverse impact on the collection of tax revenues” – depends on how you define customer service. Most businesses seem to believe that customers want a local presence, something accountants and their clients will have to live without.
The key issue, then, is how can HMRC make such a massive transformation, which involves a 31% reduction in headcount at an administration with the consistently lowest morale among government departments, and deliver a fully digital tax system by 2020?
Judging by HMRC’s previous efforts in this area, a smooth transition appears incredibly optimistic. CIoT president Chris Jones admits that technical difficulties, including flaws within its PAYE and National Insurance computer systems, as well a number of errors coming from its £270m ‘Real Time Information’ (RTI) programme, suggests there may be problems on the horizon.
“Based on what you read about how they’re building this system, it seems very sound. However, is it likely that there will be teething problems? Yes. Were there teething problems with RTI? Absolutely,” says Jones.
Previous problems associated with HMRC’s digital projects have centred on reconciliation between employer and tax collector estimates. Elaine Clark, founder of CheapAccounting.co.uk believes the government will have to up its game when introducing such a massive digital transformation.
“It’s an IT project, need we say any more. HMRC does not have a strong track record of delivering IT to the masses. If we take RTI for example, to quote one of their very senior members, ‘real time doesn’t actually mean real time’, she claims.
Access some areas
One of the benefits of a digital account is accessibility; people will be able to pay their taxes when it suits them – for example, by direct debit. Users will be able to see how their tax is calculated and will be able to let agents manage their account if they wish, being able to see the same picture of their tax affairs online as their agent.
With a consultation document on the digital account eagerly awaited by many, a number of issues regarding the ‘user-friendly’ system are being debated. But one of the main concerns is getting the nation’s 30 million taxpayers connected to the internet.
Staylittle, a small village in the Welsh county of Powys, is just one of many areas in the UK that struggles to receive a mobile phone signal, let alone an internet connection, so how will everyone submit their taxes online?
Plans have been put in place by the Conservatives to create a broadband Universal Service Obligation, which would give everyone, including taxpayers and small business owners, the right to Broadband which has a speed of 10mbps by 2020.Clark believes that accountants and taxpayers located outside of well-connected areas will find it difficult to access their digital account.
“I live in rural Suffolk and a fast internet connection is something that I can only dream about. The government are well behind the rest of Europe in delivering a broadband infrastructure around this country,” she says.
Clark adds that the possibility of gaining faster broadband is crucial for small, rural businesses as this tool could open up so many doors for them, not least the ability to hand in their tax returns online.
“Rural businesses can now operate via Amazon, PayPal and many other online services, so the government needs to give SMEs faster broadband in order to support small businesses and to ensure the future of this country.”
Phil Shohet, senior consultant at FoulgerUnderwoodKATO, shares Clark’s concerns regarding the government’s promise to deliver a better IT infrastructure.
How will digital tax accounts affect practitioners?
Accountants are optimistic they will be presented with opportunities to advise clients on the new requirements, despite fears the public will be mistaken into thinking they no longer need to do tax returns.
“For the client it’s going to be a bit of a nightmare. When the chancellor said he was getting rid of self-assessments in the Budget, people thought ‘oh brilliant I won’t have to do an annual tax return anymore’.
“But now people will have to deliver a reasonably robust set of accounts and tax returns on a quarterly basis rather than annually. Clients will not want, and will not be able to afford to pay four times the annual fee to their accountants for that service,” Clark explains.
Phil Shohet, consultant at Foulger Kato Underwood, is confident that local accountants will be able to help their clients with the initial ‘setting up’ stage of their account.
“Hopefully taxpayers are going to be helped by their accountants, especially the ones who have trouble already submitting their returns in time. Eventually accountants will be able to train up their clients to enter their own information into a system that can be accessed by them,” he says.
Anita Monteith, tax faculty technical manager at ICAEW, says moving to digital accounts will be a gradual process and cites the changes that have already been made in the past with online tax returns.
“Just in self-assessment, if you were to go back ten years, the amount of people that were able to file their tax returns online was tiny. But now the majority of people do it that way. It’s been a steady climb in the way people pay their taxes. Five years ago it became compulsory for companies to file online, so I think that HMRC should continue a gradual move,” she posits.
“Any new system has got to be properly checked and I think any further move to make people final online should totally be driven by choice.”
‘Customer service’ problems
HMRC predicts that digitisation will lower customer calls from 38 million to 15 million in 2019/20 as more and more information and services will be online, but many fear that this will cause havoc on its so-called ‘customer service’ in the meantime.
Monteith is confident that HMRC will create a successful digital tax system, but hopes that a desire to improve service levels won’t result in a mass exodus by key staff members.
“HMRC needs to make sure that the new system is running before they chuck away the old one and that is not just an IT thing, it’s to do with people. I hope that HMRC manages to retain its most experienced staff during the changeover and doesn’t lose to manty of those during the relocation process,” she says.
Not everyone shares Monteith’s opinion, with Clark stating that at present, “there is no customer service at HMRC”.
“HMRC is broken, and as far as I’m concerned, this is only going to make the problem worse. There are some fundamental issues within HMRC that needs to be fixed before they embark on any major project. Their staff need to learn how to pick up a telephone and answer queries – they need to modernise their communication methods,” she says.
Financial secretary to the Treasury David Gauke unveiled detail around how the digital tax accounts are expected to run at HMRC’s stakeholder conference in London. There are four key planks to the offering including tax simplification, tax all in one place, making tax digital for individual taxpayers and making tax digital for businesses.
However, HMRC is still in the process of migrating from its creaking £10.7bn Aspire IT contract and past IT howlers have left many advisers with the impression there will be major teething problems with online tax accounts during its initial stages.
“They will struggle to deliver this as an IT project and they will encounter a lot of cynicism from accountants such as me that have seen HMRC’s numerous failures at trying to deliver any system on time. I hope I’m proved right, but I have said that if [HMRC chief executive] Lin Homer manages to deliver this by 2020 I will run down my local high street naked,” says Clark.
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