Why HMRC must change to succeed

In April 2026, we launched a major new programme of work: a thorough reassessment of what the UK tax system should look like, what institutional structures are needed to support it, and where the gaps between aspiration and reality are most acute. Having begun by bringing ICAEW’s ten tenets up to date, our focus now is on the institutional pillars. Over the next few months we aim to publish a paper on each pillar, asking if it can support a better tax system and, if not, how we can strengthen it.

In the first paper, summarised below, we focus on administration: the operational arm of the tax system – HMRC – which is responsible for collecting revenue, enforcing compliance, and supporting taxpayers.

HMRC – a mixed picture

HMRC is critical national infrastructure. In 2024–25 it collected £875.9bn, nearly 30% of GDP. When it works well, the rest of the public realm works with it. When it does not, businesses waste hours chasing routine queries, self-employed taxpayers cannot get clear answers, and the tax gap grows because honest people cannot work out what is being asked of them.

The picture is not all bleak. Across two decades, HMRC has brought the tax gap down from more than 7% to an estimated 5.3% of theoretical liability. It delivered a record £48bn in compliance yield in 2024–25. Personal and Business Tax Accounts were accessed 224 million times in 2023–24. More than 1.8 million businesses now file quarterly VAT returns through Making Tax Digital (MTD). On the metrics that government often celebrates, HMRC could be said to be delivering.

But the same period has seen a steady deterioration in the experience that taxpayers and agents have. Only 66.4% of attempted adviser calls were answered in 2023–24, against a target of 85%. Average wait times exceeded 23 minutes. Although these numbers have since improved, we are consistently told by members that HMRC service overall remains unacceptable. In fact, HMRC estimates that 72% of calls were the result of “failure demand” – contact caused by process failures, delays or customer confusion, rather than a genuine need for advice.

That last figure matters. Failure demand is not a customer-service problem; it is an upstream design problem. Customers are calling because processes do not work, guidance is unclear or systems do not integrate.

Vision without execution

In July 2025, HMRC published its transformation roadmap. The destination it sets out – digital-first, automated, user-centric tax administration – is the right one. But the roadmap reads more as a statement of intent than as a delivery plan.

Government IT transformations have a poor track record when they prioritise ambition over execution discipline. The National Audit Office (NAO) has repeatedly warned that HMRC's forecasting of digital uptake has been over-optimistic. Channel-shift assumptions lack supporting evidence. Reducing traditional service capacity before proving that digital alternatives work has produced exactly the problems anyone could have predicted.

Governance under strain

Since 2024, the HMRC Board has been chaired by the Exchequer Secretary to the Treasury – the first time a minister has held this role. This change was a response to a real problem: the previous board’s role was advisory rather than operational and it had proved ineffective at holding HMRC leadership to account. The aim to strengthen political accountability for delivery was laudable. However, this solution fundamentally alters the relationship between ministerial oversight and operational independence in ways that potentially risk trading one problem for another.

Tax administration requires operational independence – decisions about individual cases, audit priorities and compliance actions must be free from political interference. Strategic direction, service standards, performance and resource allocation are legitimate areas for political oversight, and it is right that ministers are able to exercise that oversight. The question is whether board chairmanship is the right mechanism for doing so. Ministers have tenures governed by the parliamentary cycle and resulting electoral pressures that may conflict with the long-term capability building HMRC needs. They may also face conflicts of interest when policy issues and major compliance matters arise.

From data collection to data strategy

HMRC sits on enormous volumes of structured data. The potential to use it to design better services, target compliance more precisely and inform policy is significant. The underlying problem is not collection. It is what happens next.

The introduction of iXBRL is a clear example. Businesses invested significantly to comply with iXBRL filing for company accounts and tax computations, providing HMRC with highly structured, machine-readable data. More than a decade later, there is little evidence HMRC has used that data to improve compliance, service design or policy analysis. That is a missed opportunity and a poor return on the additional compliance burden.

An effective data strategy must do more than store; it must turn data into action. That requires data governance with clear ownership and quality standards; mandatory cause-coding of every interaction so the top reasons for avoidable contact can be identified and fixed; modern analytics that give service managers real-time visibility of demand and failure patterns; and privacy-preserving design built in from the start.

The case for investing to save

Our recommendations require upfront investment, but they are properly understood as “invest to save” propositions. The joint ICAEW/CIOT report on HMRC's customer service estimated that HMRC spends £36m a year in staff time handling progress-chasing calls alone – contact made purely to check on routine case progress. Set against a £900m customer service budget and a 72% failure-demand rate, the cost of avoidable contact runs into hundreds of millions a year.

The wider effect is larger. Service failures particularly affect the newly self-employed, small businesses without professional support and those facing complex life changes – precisely the taxpayers most likely to make errors that contribute to the tax gap. Small-business errors are estimated to account for £4.7bn of the gap each year. Even a modest improvement in service quality could reduce that figure materially.

The single foundational change

Of all our recommendations, one is foundational and must come first: the immediate and mandatory cause-coding of all customer contact. Without understanding why customers are forced to call, every other investment is uninformed. This single change would identify the top failure points in HMRC's processes, enable targeted fixes that reduce demand at source and create a continuous feedback loop for service improvement. It is the prerequisite for evidence-based transformation.

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