In its latest report, Parliament’s Public Accounts Committee (PAC) has drawn a number of conclusions about the administration of the tax system and made several recommendations for HMRC.

Key challenges and advice include the following.

• Tax has become more costly to administer. The total cost is estimated at over £20bn a year, with most of the burden falling on businesses. In 2023-24, HMRC spent £4.3bn on tax administration, an increase of 15% in real terms compared to 2019-20. A key driver has been increasing complexity. The PAC has called on HMRC to “publish realistic plans to simplify the tax system”. Two days before the PAC’s report was published, on 28 April 2024, the government announced a package of tax administration simplification measures. 
• Taxpayers and agents have lost trust in HMRC. Trust in HMRC has declined for most taxpayer groups in the last few years. Between 2021 and 2023, trust in HMRC fell from 52% to 47% for individuals and from 61% to 49% for agents. The PAC says HMRC should work with taxpayers and agents to understand why this is the case. 
• HMRC’s compliance productivity has declined. HMRC’s compliance return per worker was £1.27m per worker in 2023-24. Prior to the COVID-19 pandemic, it was £1.4m per worker (expressed in 2023-24 prices). The PAC has urged HMRC to set out the steps it will take to return compliance productivity to pre-pandemic levels.
• HMRC’s legacy systems are holding back progress. Work on updating, improving and replacing HMRC’s legacy IT systems is taking longer and is costing more than HMRC expected. In addition, HMRC’s reliance on legacy IT systems is constraining its use and development of AI. By its own admission, HMRC is lagging behind other organisations in enabling its customers to communicate with it through digital channels. HMRC should come back to the PAC with a timetable for improvements once the spending review is published.
• The benefits of Making Tax Digital (MTD) have yet to be demonstrated. Although MTD for VAT is generating additional tax revenue, it “is also imposing additional administrative costs on taxpayers” and there is “no strong evidence to date to suggest productivity improvements or other benefits for most VAT traders”. In February 2024, HMRC estimated that taxpayers will incur transitional costs of £500m, and ongoing net costs of £200m each year, due to the introduction of MTD income tax. HMRC is encouraged to learn lessons from its experience of implementing MTD and put “customer needs at the heart of its plans to improve digital services”.

Caroline Miskin, Senior Technical Manager – Digital Taxation, at ICAEW, says: “It is no surprise that the cost of complying with tax obligations is increasing as each year more is asked of HMRC, taxpayers and agents. It has been clear for some time that HMRC is struggling to meet the additional demands placed on it, contributing to a decline in customer service that appears to be eroding trust in the tax system.”

“It is vital that the impacts of administering and complying with changes in tax policy, including changes to HMRC systems, are given serious thought at an early stage in the process. More needs to be done to simplify the tax system, not just tax administration. It is disappointing that the government appears to be only interested the latter. MTD demonstrates the importance of consulting with and listening to taxpayers and agents. Our members tell us – and we have told HMRC and government – that quarterly reporting will increase costs for little obvious benefit, and the PAC report supports this.”