Building a better tax system: transforming UK tax administration

The infrastructure we cannot ignore

HMRC is Britain's hidden critical infrastructure. In 2024–25, it collected £875.9bn – equivalent to nearly 30% of the UK’s gross domestic product (GDP) – to fund public services. Yet for millions of taxpayers and their agents, interacting with HMRC has become an exercise in frustration.

The statistics tell a stark story. Only 66.4% of attempted adviser calls were answered in 2023–24, against a target of 85%, while average wait times exceeded 23 minutes. Although these numbers have since improved, we are consistently told by members that HMRC service overall remains unacceptable. Most tellingly, HMRC estimates that 72% of calls were a result of "failure demand" – contact caused by process failures, delays, or customer confusion, rather than genuine need for advice (see HMRC customer service - NAO report).

This is not simply about customer service standards. When a tax authority fails to provide accessible, reliable service, it undermines voluntary compliance – the foundation of any modern tax system. It creates unnecessary costs for businesses, particularly small enterprises that lack dedicated tax teams. And it wastes public resources through inefficient processes which generate more problems than they solve.

HMRC's transformation programme represents one of government's most ambitious digitalisation efforts. The vision – simpler, digital-first, automated tax administration – is compelling. But vision without execution is merely aspiration. This chapter examines why the current transformation approach risks failure and sets out a path to turn ambition into delivery.

The transformation challenge

Before examining the problems, it is important to acknowledge HMRC's genuine achievements. Over two decades, the department has brought down the tax gap from more than 7% to an estimated 5.3% of theoretical liability. It processes millions of tax returns annually and delivered a record compliance yield of £48bn in 2024–25, which represents a strong return on investment for the government.

The scale of digital adoption is impressive: Personal and Business Tax Accounts, together with the HMRC app, were accessed 302 million times in 2024–25. Customer service interactions made through automated or digital self-serve channels accounted for more than three quarters of all interactions. Major policy changes like Making Tax Digital (MTD) for VAT have been delivered, with more than 1.8 million businesses now filing quarterly VAT returns digitally.

However, this efficiency drive has created structural tensions. Digital services have not reduced contact demand as anticipated. Instead, they have often shifted complexity rather than eliminating it. Customers struggle with new interfaces, agents face authorisation difficulties and backend systems remain fragmented. The result is a vicious cycle: poor service quality generates more contact, which overwhelms capacity, which degrades service further.

The upcoming challenges are formidable. MTD for income tax launched in April 2026 for individuals with qualifying income of more than £50,000. Mandatory payrolling of benefits-in-kind, already deferred once, is scheduled for April 2027. GOV.UK One Login will eventually replace Government Gateway. Alongside this, the introduction of multi-factor authentication for agent services and the new mandatory tax adviser registration regime will reshape how agents access HMRC systems and how the profession itself is regulated. Each represents a potential service shock if poorly executed.

The transformation roadmap

 Any serious transformation plan must answer three questions: Where are we now? Where are we going? How do we get from A to B? In July 2025, HMRC published its transformation roadmap and while it articulates the destination – digital-first, automated, user-centric tax administration – it provides insufficient detail on sequencing, dependencies, legacy system replacement and risk mitigation.

This matters because government IT transformations have a poor track record when they prioritise ambition over execution discipline. The roadmap reads more like a statement of intent than a navigable route with clear milestones and decision points.

The National Audit Office (NAO) has repeatedly warned that HMRC's forecasting of digital uptake and workload reduction has been over-optimistic. Digital services have not delivered the anticiated reduction in phone and postal contact. Channel shift assumptions lack supporting evidence, and the decision to reduce traditional service capacity before proving digital alternatives work has created predictable problems.

The scale of failure demand – 72% of calls in 2023–24 – reveals deeper issues. This is not about call centre capacity; it is about upstream design problems. Customers are contacting HMRC because processes do not work, guidance is unclear, or systems do not integrate. No amount of chatbots or FAQ pages will fix fundamental service design flaws.

The roadmap is silent on several crucial areas, yet based on successful digital transformations elsewhere in government and internationally, HMRC's roadmap should commit to:

1. A "prove then remove" approach: Any change that reduces phone or postal access must first demonstrate a measurable reduction in the corresponding contact reason for at least two quarters. If digital services don’t reduce demand, traditional channels must be maintained. To support this, HMRC must publish clear readiness criteria and go/no-go checklists for any new service, with detailed rollback plans prepared alongside rollout plans.
2. Agent parity by design: HMRC’s Charter commits to the taxpayer’s right to be represented. However, HMRC's digital services are often designed primarily for taxpayers. All digital releases must deliver equivalent or better functionality for agents as they do for taxpayers. This includes streamlining authorisation workflows, enabling secure two-way messaging and providing comprehensive data views.
3. A clear technical architecture: HMRC operates dozens of aging systems that don't effectively communicate, and the roadmap lacks a clear re-platforming plan. HMRC must publish a detailed platform replacement schedule, including dependencies, slippage contingencies and exit criteria for legacy systems. The technical roadmap should be as detailed as the policy roadmap.
4. Root cause analysis: Perhaps most importantly, there is no commitment to systematically tracking why people contact HMRC and then fixing the underlying causes. This is a basic service improvement methodology that is essential for reducing the burden on customer service and improving the taxpayer experience.

Without these commitments, this roadmap will remain a statement of ambition, not a credible plan for execution.

Governance

HMRC is a non-ministerial department, a status intended to insulate tax administration from political interference. Day-to-day operations are managed by Commissioners and the Executive Committee. The HMRC Board provides advisory oversight.

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.

ICAEW believes a fully independent board is needed to restore trust and ensure long-term stability, but we recognise that simply reverting to the previous arrangement is not the answer. Any reform must include stronger accountability mechanisms that were visibly absent before. This would mean returning to a non-executive chair, while establishing more robust mechanisms for political accountability and service oversight than existed previously.

A fully independent HMRC Board would:

1. Restore operational independence by removing potential conflicts of interest when dealing with major taxpayers or politically sensitive compliance issues – tax administration decisions must be seen to be free from political influence.
2. Provide long-term stability, as independent chairs typically serve longer terms than ministers, enabling a sustained focus on capability building and transformation delivery that extends beyond electoral cycles.
3. Strengthen professional scrutiny by appointing board members with relevant expertise in tax policy, digital transformation and large-scale service delivery, who can provide an informed challenge to management.
4. Maintain democratic accountability by establishing formal reporting mechanisms to Treasury ministers and parliamentary committees, supported by regular public hearings and transparent performance reporting.

This model should be complemented by an independent HMRC Customer Experience Panel – comprising tax professionals, digital experts and taxpayer representatives – which would publish annual public assessments against HMRC's Charter and service standards, providing external validation of performance claims. The panel would operate as a dedicated watchdog for the taxpayer experience, gathering evidence on service quality, wait times, digital functionality and the fairness of treatment for both individuals and tax agents. Its annual report would be made public, providing a transparent, evidence-based verdict on HMRC's performance from the user's point of view. Crucially, HMRC would be required to formally and publicly respond to this report within a set timeframe, outlining a clear action plan to address the findings.

This panel is designed to fill a crucial gap not covered by other bodies. While a proposed independent board would provide strategic governance and the Charter Stakeholder Group acts as a vital consultative forum, neither is designed to deliver a formal, independent public verdict on performance. Similarly, while the NAO conducts powerful periodic investigations into customer service as part of its broad value-for-money remit, its role is not to provide a guaranteed, annual assessment. The panel, therefore, would be the only body with the specific and continuing mandate to publish a yearly, independent report focused exclusively on the taxpayer and agent experience, with the unique authority to compel a public response from HMRC.

Whatever the governance model, HMRC needs stable leadership, clear performance metrics and external audit of service quality – not just revenue collection and cost control. The current focus on financial metrics while service standards deteriorate is unsustainable.

From data collection to data strategy

HMRC collects enormous volumes of data: tax returns, payment records, compliance intelligence and millions of daily digital interactions. The potential to use this data for better service design, targeted compliance and policy insights is transformational.

Yet, despite digital interactions rising to more than 215 million in 2023–24, the underlying problems remain. Phone demand has not fallen as hoped, waiting times have increased and backlogs persist. This points to a fundamental issue: HMRC has built impressive data collection capabilities but lacks the strategy and architecture to turn that data into better outcomes for taxpayers.

A striking example is the introduction of iXBRL for company accounts and tax computations. Businesses invested millions to comply with iXBRL filing requirements, providing HMRC with highly structured, machine-readable data. Yet, more than a decade after its introduction, there is little evidence that HMRC has used this data to improve compliance, service design, or policy analysis. This represents a significant missed opportunity and a poor return on investment for both HMRC and the businesses bearing the compliance burden.

An effective data strategy must do more than collect and store; it must turn data into action. That requires investment in four areas:

1. Build strong governance: Before deploying AI or advanced analytics, HMRC needs a comprehensive data catalogue showing what data exists, where it sits, who owns it and what quality standards apply. This must be underpinned by shared data standards across all systems to ensure data is consistent, trustworthy and ready for use.
2. Analyse every interaction: Every phone call, web chat and letter is a signal. This contact must be systematically cause-coded to identify upstream problems like confusing guidance or broken digital journeys. HMRC should publish the top five reasons for avoidable contact quarterly, with a clear action plan to fix the root cause.
3. Modernise the technology platform: Current reporting is often months behind reality. HMRC must move away from legacy systems and re-platform its data architecture to support modern analytics. This will enable real-time dashboards for service managers, showing demand patterns and failure rates to allow for proactive intervention instead of reactive firefighting.
4. Embed privacy by design: Public trust is paramount. All analytics frameworks must be privacy-preserving by design, with clear, transparent governance on what data can be used for what purposes. Data lineage and privacy controls must be built in from the start, not added as an afterthought.

Ultimately, the future efficiency of the tax system depends on HMRC's ability to transition from being a passive data storehouse to an active, insight-driven organisation.

Invest to save

The challenges facing HMRC are not unique, and other tax authorities around the world could provide inspiration for successful transformation. In New Zealand, a focus on user support and data standards reduced the cost-to-collect by a third while maintaining service quality during the transition. The Netherlands rebuilt its administration around citizen life events rather than tax types, improving compliance by reducing the burden on individuals. In Denmark, the public reporting of comprehensive satisfaction and quality metrics drives continuous improvement and public accountability. 

These international examples provide a proven blueprint for success. They show that all successful transformations are built on the same core principles: they are user-centric, data-driven and manage change through gradual transitions.

The recommendations in this chapter are likely to require significant upfront investment, but they should be understood as "invest to save" propositions rather than additional costs. The current system failures impose substantial hidden costs on both the Exchequer and the wider economy.

The joint CIOT and ICAEW report: Tackling HMRC's customer service challenge provides evidence of these costs. It estimated that HMRC spends an average of £36m annually in staff time handling "progress-chasing calls" – contact purely to check on routine case progress rather than seeking advice or clarification. This figure represents just one category of failure demand from one user group, yet it alone demonstrates the scale of waste in the current system.

This £36m is the tip of the iceberg. HMRC's total customer service budget is around £900m annually. If 72% of all contact is failure demand – as HMRC's own figures suggest – then the cost of avoidable contact runs into the hundreds of millions each year. This represents staff time, infrastructure costs and opportunity costs which could be redirected to productive activities if the underlying service failures were fixed.

Poor service quality forces businesses to seek professional help unnecessarily or dedicate internal resources to resolving HMRC-created problems. For small businesses especially, this is a significant cost – time and money diverted from productive activity to manage bureaucratic failure.

More significantly, service failures particularly affect high-risk taxpayer groups: the newly self-employed, small businesses without professional support and those facing complex life changes. These are precisely the taxpayers most likely to make errors which contribute to the tax gap. When HMRC's services fail these groups, it increases the portion of the tax gap caused by taxpayer error and confusion rather than deliberate evasion.

The tax gap attributable to small business errors and failures is estimated at £4.7bn annually. Even a modest improvement in service quality – helping these taxpayers get their obligations right from the start – could reduce this error-driven portion of the tax gap significantly.

Investing to fix the root causes of service failure would yield a double dividend: saving hundreds of millions in operational costs by eliminating avoidable contact, while also reducing the multi-billion-pound tax gap by helping taxpayers get it right first time. The upfront cost to modernise HMRC's systems and processes is therefore a high-return investment that could pay for itself several times over.

Investing in people and culture

Technology alone will not transform tax administration; culture, skills and incentives are just as critical. At the heart of the challenge is a fundamental tension between HMRC’s dual roles as a service provider and an enforcement agency. While the department refers to taxpayers as “customers”, the dominant organisational mindset remains rooted in enforcement, not service. This stops a genuine service culture from taking hold and erodes public trust.

One solution may be to hive off HMRC’s enforcement activities into a separate organisation, but this would be costly and disruptive, and would sever vital intelligence flows. Instead, HMRC must empower its existing directorates to be culturally distinct. The Customer Services Group needs the autonomy, leadership and bespoke performance metrics to build a genuine service culture, separate from the necessary compliance focus of the enforcement arms.

This cultural shift must be driven by a radical change in performance metrics. Today’s targets too often reward the wrong behaviours. Performance is frequently measured by volume (calls answered, cases cleared) rather than quality, encouraging staff to close a case quickly instead of resolving the underlying problem. Similarly, digital adoption is celebrated as a success in itself, without measuring whether the digital service actually solved the user’s problem or simply shifted them to the phone, creating more work.

Effective performance management requires a fundamental shift towards metrics that reflect genuine outcomes. The focus should be on goals such as:

1. First contact resolution (or “once and done”): The percentage of issues fully resolved in a single interaction, which is the truest measure of an efficient service.
2. Accuracy: The error rates in both processing and advice, which directly impacts trust and rework.
3. Failure demand: The proportion of contact caused by HMRC's own system failures, confusing guidance, or previous errors, versus contact for legitimate advice.

Even the best metrics are useless without sustained investment in the people who deliver the service. Lasting transformation requires:

1. Stable, multi-year funding: This is essential to allow for proper long-term planning, prevent the constant loss of institutional knowledge caused by repeated reorganisations and build lasting capability.
2. Systematic skills development: Staff need career paths that reward problem-solving and investment in training for modern data analysis, digital tools and service design.
3. Surge capacity: The system needs ring-fenced resources that can be deployed during predictable peaks and unexpected service shocks, ensuring baseline operations don't collapse under pressure.

Without this sustained investment in people and capability, even the most advanced technology will fail to deliver meaningful change.

The foundation for all change

HMRC stands at a crossroads. The current transformation programme has the right ambitions but lacks the execution discipline to deliver them. Without fundamental changes to roadmap planning, governance structures and data strategy, there is a high risk of repeating past patterns – ambitious launches followed by service failures and customer frustration.

The path forward requires three fundamental shifts:

1. From vision to plan: Replace high-level aspiration with detailed, testable roadmaps which prove change before imposing it.
2. From independence to accountability: Strengthen governance through independent oversight while maintaining operational autonomy.
3. From collection to action: Transform data capability from passive storage to active service improvement.

Of all the recommendations in this report, one is foundational and must be implemented first: the immediate and mandatory cause-coding of all customer contact. Without understanding why customers are forced to call, every other investment is a shot in the dark. This single change would identify the top failure points in HMRC's processes, enable targeted fixes which reduce demand at source, provide real-time feedback on service improvements and create a virtuous cycle of continuous improvement.

This recommendation enables all others by providing the data necessary to prioritise improvements and measure success. It is the prerequisite for evidence-based transformation, rather than transformation by aspiration.

Strategic priorities and dependencies

Beyond this foundational requirement, HMRC faces four interdependent workstreams that must be carefully sequenced.

1. Making the roadmap a route requires moving from policy ambitions to platform realities. The legacy system replacement schedule must be as detailed as the policy roadmap, with clear dependencies and exit criteria. Digital services must deliver agent parity from day one, not as an afterthought. Most critically, traditional services cannot be reduced until digital alternatives have proven their effectiveness for at least two quarters. This "prove before removing" principle is essential for maintaining public trust during transition.
2. Strengthening governance for delivery provides the stability and oversight needed for sustained transformation. An independent HMRC Board with relevant expertise would restore operational independence while maintaining democratic accountability. Independent service audit through a dedicated customer experience panel would provide external validation of progress claims. Crucially, ring-fenced surge capacity and multi-year funding commitments would prevent the repeated cycle of cutting service when demand peaks.
3. Building real data strategy transforms HMRC from a passive data collector to an active, insight-driven organisation. Beyond mandatory cause-coding, this requires comprehensive data governance with clear ownership and quality standards, privacy-preserving analytics that protect individual rights while enabling service improvements and real-time monitoring that enables proactive intervention rather than reactive firefighting.
4. Resetting performance management aligns incentives with genuine outcomes rather than volume metrics. This means tracking first contact resolution, accuracy and satisfaction alongside traditional measures, publishing processing time distributions to prevent long-tail cases being ignored and creating tiered standards that reflect different case types and complexity.

These workstreams are not independent. Data strategy informs roadmap priorities, which require governance stability to implement, which in turn needs performance frameworks to sustain. The sequencing matters: governance reforms provide the foundation for long-term planning, data improvements enable evidence-based prioritisation and performance changes require the insights from better data to be meaningful.

The stakes and the choice

These changes will not be easy or quick – they require sustained political commitment, adequate funding and cultural change across a large organisation – but they are essential if HMRC is to fulfil its potential as a modern, effective tax administration.

Tax administration touches every business and most citizens. When it works well, it enables economic growth and funds public services efficiently. When it fails, it creates unnecessary costs, undermines voluntary compliance and erodes public trust in government itself.

The business case is compelling. As already set out, the cost of avoidable contact runs into hundreds of millions of pounds each year, and the small-business share of the tax gap could be cut materially by helping these taxpayers get it right first time. The savings, in operational cost and additional revenue, would dwarf the upfront investment required to fix the underlying causes.

HMRC has the technical capability and policy mandate to become a world-leading tax administration. What it needs now is the execution discipline to turn that potential into reality. The choice is clear: continue with transformation by aspiration or commit to transformation by execution.

The British economy and taxpaying public deserve nothing less than the latter.