Recommendations & Conclusions
39 items
2
Recommendation
23rd Report - The cost of the tax system
Accepted
Taxpayers’ trust in HMRC is falling. Trust in a tax authority is vital for the authority to effectively discharge its role as it affects the willingness of taxpayers to engage and pay the correct amount of tax on time. HMRC says that trust has to be at the centre of …
Government response. The government states HMRC already publishes annual survey results and customer feedback. It also commits to publishing a Transformation Roadmap this summer, detailing digital services aimed at improving taxpayer experience.
HM Treasury
3
Conclusion
23rd Report - The cost of the tax system
Accepted
HMRC’s compliance productivity has declined, despite its increased focus on prevention and investment in digital systems and higher–skilled staff. HMRC’s compliance work offers high returns and good value for money but its compliance returns have declined from over £1.4 million per compliance worker prior to the COVID–19 pandemic, to £1.27 …
Government response. The government states HMRC has already written to the Committee. It confirms record compliance yield for 2023-24 and projected targets for 2024-25, committing to recruiting an additional 5,500 compliance staff by March 2030 and investing in system improvements to increase …
HM Treasury
4
Conclusion
23rd Report - The cost of the tax system
Accepted
HMRC allowed many of its IT systems for administering tax and interacting with customers to become out of date, increasing both its costs and the burdens on taxpayers. In 2020, HMRC recognised its IT systems for administering tax were a significant risk to operations, due to the postponement of maintenance …
Government response. The government has written to the Committee, as requested, and will publish a Transformation Roadmap this summer. HMRC also committed to procuring an enterprise Customer Relationship Management (eCRM) platform by the end of 2025-26 and adopting a Contact Centre as …
HM Treasury
5
Conclusion
23rd Report - The cost of the tax system
Accepted
It is of the utmost importance that HMRC learns lessons from its experience of implementing Making Tax Digital (MTD) and puts customer needs at the heart of plans to improve digital services. The previous Public Accounts Committee reported in 2023 that HMRC had lost sight of the need to put …
Government response. The government states that HMRC already conducts extensive customer research, uses customer insight in its design processes, and assesses formal change against Customer Guardrails. Customer impacts are recorded in impact assessments and published in Tax Information and Impact Notes (TIINs).
HM Treasury
6
Conclusion
23rd Report - The cost of the tax system
Accepted
We are concerned that HMRC is not well–placed to take advantage of the opportunities offered by technology, for example the development of artificial intelligence (AI) and e–invoicing. AI has the potential to improve the productivity and speed of HMRC services. But, as we have reported recently, achieving large–scale benefits from …
Government response. The government has written to the Committee, stating HMRC is well-positioned for new technologies and is piloting several Generative AI initiatives. In 2025-26, HMRC will launch new AI-powered compliance tools and expand data-sharing, supported by an AI Board, training, and …
HM Treasury
1
Conclusion
23rd Report - The cost of the tax system
Accepted
On the basis of a report by the Comptroller and Auditor General, we took evidence from His Majesty’s Revenue and Customs (HMRC) on the cost of administering the tax system.1
Government response. The government agrees with the Committee's findings and will publish HMRC’s Transformation Roadmap in summer 2025 to detail plans for transforming tax administration. Additionally, HMRC will recruit an additional 5,500 compliance staff by March 2030 to enhance productivity and help …
HM Treasury
7
Conclusion
23rd Report - The cost of the tax system
Accepted
Tax policy changes are also increasing the cost of the tax system. Of the 240 changes announced over the period from 2022 to 2024, HMRC identified 16 changes as having a significant financial impact on businesses, of which 13 had estimated implementation and ongoing costs totalling £913 million. HMRC also …
Government response. The government agrees and commits to publishing HMRC’s Transformation Roadmap by Summer 2025, detailing how HMRC plans to simplify tax administration, reduce customer burden, and report progress. HMRC is also assessing the feasibility of updating its Standard Cost Model to …
HM Treasury
8
Conclusion
23rd Report - The cost of the tax system
Accepted
Given the increase in costs reported by the NAO, we asked HMRC what progress it had made on its key strategic measure to reduce the cost of running the tax system. HMRC said the increase in its costs since 2019–20 had been broadly the same as the increase in tax …
Government response. The government agrees with the Committee's underlying concern about costs and commits to publishing HMRC’s Transformation Roadmap in summer 2025. This roadmap will detail plans to simplify tax administration and reduce the time customers spend on tax affairs through better …
HM Treasury
9
Conclusion
23rd Report - The cost of the tax system
We asked HMRC about the cost implications of running the Scottish Income Tax system. HMRC said the way it administers Scottish Income Tax is same as for UK Income Tax. The Scottish Government pays for the “bit more money” HMRC spends on IT and accounting needed, for example, to make …
HM Treasury
10
Conclusion
23rd Report - The cost of the tax system
Accepted
We asked HMRC why the cost to business of administering the tax system was so high. HMRC said that complying with tax obligations is an inevitable feature of doing business, and its aim was to make that cost as low as possible whilst making sure businesses comply. It told us …
Government response. The government agrees with the Committee's underlying concern about the cost to business and commits to publishing HMRC’s Transformation Roadmap in summer 2025. This roadmap will outline plans to simplify tax administration and reduce the time customers spend on tax …
HM Treasury
11
Conclusion
23rd Report - The cost of the tax system
Accepted
We received written evidence from VAT Solutions which specialises in providing VAT advice and regularly interacts with HMRC on behalf of its clients. VAT Solutions gave examples of how inefficiencies in the VAT system resulted in unnecessary delay and increased costs to taxpayers, including increasing the fees taxpayers pay agents. …
Government response. The government agrees and will publish HMRC’s Transformation Roadmap by Summer 2025, outlining plans to simplify tax administration and reduce customer burden. HMRC is also assessing the feasibility of updating its Standard Cost Model to measure taxpayer costs.
HM Treasury
12
Recommendation
23rd Report - The cost of the tax system
Accepted
HMRC does not estimate the total costs incurred by individuals in administering tax.18 We therefore asked HMRC why it gave less attention to individuals’ costs than businesses. It said it focused on individuals’ wider customer experience, including the time they take to administer tax and the ease of dealing with …
Government response. The government agrees to the recommendation and will publish HMRC's Transformation Roadmap by Summer 2025, which will include metrics for progress in reducing customer time spent on tax and will consider measuring administrative burdens on individual taxpayers.
HM Treasury
13
Conclusion
23rd Report - The cost of the tax system
Accepted
We asked HMRC what areas of the tax system need to be addressed to achieve efficiencies. HMRC said the tax system is very complex, which generates opportunities for evasion and avoidance, can cause errors and increase costs through greater customer contact, as taxpayers seek reassurance from HMRC on what they …
Government response. The government agrees with the implied recommendation to simplify the tax system and will publish HMRC's Transformation Roadmap by Summer 2025, detailing plans to simplify administration and reduce customer burdens, including metrics for progress and considering the measurement of individual …
HM Treasury
14
Conclusion
23rd Report - The cost of the tax system
Accepted
In July 2020 HMRC and HM Treasury published the Tax Administration Strategy (the Strategy) which set out how they would build a modern, trusted tax administration system by 2030.23 As part of the Strategy they wanted to gradually increase the trust of taxpayers in HMRC. Trust is seen as vital …
Government response. The government agrees and states it has implemented the recommendation by actively working to improve trust through better services and fairness, publishing annual survey results, and confirming the publication of a Transformation Roadmap this summer to enhance taxpayer experience.
HM Treasury
15
Conclusion
23rd Report - The cost of the tax system
Acknowledged
We asked about taxpayers’ declining trust in HMRC. HMRC said there had been a decline in trust globally with governments and with public bodies, and it was also subject to that decline. It told us that it had not been providing services up to the standards it wanted to, and …
Government response. The government agrees with the observation about declining trust and outlines its ongoing efforts to improve trust, including understanding drivers, using customer surveys, and improving services and processes.
HM Treasury
16
Conclusion
23rd Report - The cost of the tax system
Accepted
The HMRC Charter promises to “provide services that are designed around what [the customer] need[s] to do, and are accessible, easy and quick to use, minimising the cost to [them]”.27 HMRC’s surveys have found a significant proportion of taxpayers do not find it easy to deal with HMRC. In 2023, …
Government response. The government states the observation is implemented, detailing its current practices for conducting regular customer research, using customer insights in service design, assessing changes against 'Customer Guardrails,' and publishing customer impact assessments in Tax Information and Impact Notes (TIINs).
HM Treasury
17
Conclusion
23rd Report - The cost of the tax system
We asked HMRC why it provided additional support to large business. HMRC told us customer compliance managers were there to manage the risks large business pose to tax revenue and not to give them a better 25 HMRC has reported the change for small businesses was not statistically significant, year …
HM Treasury
18
Conclusion
23rd Report - The cost of the tax system
Accepted
HMRC’s compliance work helps to reduce the difference between taxes theoretically owed and those actually paid (known as the ‘tax gap’), resulting from accidental or deliberate failure of taxpayers and their representatives to pay the right amount of tax. HMRC’s Customer Compliance Group (CCG) contains the operational directorates that deal …
Government response. The government agrees and states it has implemented the recommendation by securing record compliance yields, setting stretching targets, and committing to recruit an additional 5,500 compliance staff by March 2030 to deliver £7.5 billion of additional tax revenue annually.
HM Treasury
19
Conclusion
23rd Report - The cost of the tax system
Not Addressed
HMRC explained that its strategy is to promote good compliance and prevent non–compliance (collectively known as ‘upstream’ compliance), and this is “bearing fruit,” with upstream yield increasing to about a third of all yield in 2023–24. HMRC considers that upstream compliance is less costly than ‘downstream’ work (carried out in …
Government response. The government claims the recommendation is implemented but does not address the committee's observation that HMRC lacks sufficient analysis of costs and marginal returns between upstream and downstream compliance work, instead providing updates on compliance yield and staff recruitment.
HM Treasury
20
Conclusion
23rd Report - The cost of the tax system
Acknowledged
The Spending Reviews in 2020 and 2021 enabled HMRC to increase its compliance staffing. In 2021–22, CCG recruited mainly senior staff to undertake compliance work. Around the same time, HMRC was reducing its frontline customer service workforce, most of whom were in lower grades. These two changes were the main …
Government response. The government acknowledges the context of compliance staffing by detailing record compliance yield, plans to recruit an additional 5,500 staff by 2030, and expected productivity increases, implicitly justifying the investment in staff despite increased costs.
HM Treasury
21
Conclusion
23rd Report - The cost of the tax system
Accepted
HMRC’s main measure of the performance of its compliance work is through tracking compliance yield arising from its interventions.38 In December 2022, the NAO reported that HMRC’s compliance work offers good value for money.39 In the five years prior to the COVID–19 pandemic (2015–16 to 2019–20), CCG’s average yield per …
Government response. The government agrees, detailing record compliance yield, recruitment of an additional 5,500 staff by 2030 to generate £7.5 billion in additional tax revenue, and an aim to increase productivity over the Spending Review 2025 period.
HM Treasury
22
Conclusion
23rd Report - The cost of the tax system
Accepted
As its compliance productivity had fallen, we asked HMRC whether it could reassure us that it was delivering value for money. It said when it brings in new compliance resource it expects to see a dip in productivity before recovering. HMRC told us this was because new staff are not …
Government response. The government agrees with the implicit recommendation to improve compliance productivity, detailing record compliance yield, recruitment of an additional 5,500 staff by 2030 to generate £7.5 billion in additional revenue, and plans to increase productivity over the next spending review …
HM Treasury
23
Conclusion
23rd Report - The cost of the tax system
Accepted
HMRC has one of the largest and most complex IT estates in the UK, and it faces a significant challenge to modernise its IT infrastructure to keep pace with changing technology. In 2020 the NAO reported that HMRC recognised 36 Senior grades include all grades from higher executive officers up …
Government response. The government agrees with the committee's finding and commits to writing to the Committee by September 2025 with plans, forecast costs, and expected savings for remediating its legacy IT systems, with progress to be reported in Annual Report and Accounts.
HM Treasury
24
Conclusion
23rd Report - The cost of the tax system
Accepted
HMRC explained that there are three key risks that arise from operating legacy systems: lower levels of security; lower reliability and resilience; and higher costs of system changes. HMRC said that its executive team and its digital team track how up to date its systems are and how that is …
Government response. The government agrees with the committee's finding and commits to writing to the Committee by September 2025 with plans, forecast costs, and expected savings for remediating its legacy IT systems, with progress to be reported in Annual Report and Accounts.
HM Treasury
25
Conclusion
23rd Report - The cost of the tax system
Accepted
We asked HMRC why it had taken longer and was costing more to remediate its legacy systems. HMRC said that some of the systems had proved more complex than expected and it had underestimated costs.45 Progress had also been slowed by HMRC transferring some funding for one of its remediation …
Government response. The government agrees and commits to writing to the Committee by September 2025, providing HMRC's plans for legacy IT system remediation, including forecast costs and expected savings.
HM Treasury
26
Recommendation
23rd Report - The cost of the tax system
Accepted
Last year HMRC acknowledged that is behind many other organisations in enabling customers to communicate securely through digital channels. In 2022–23, approximately 70% of the 22 million items of correspondence HMRC received came in through the post. In January 2025 we therefore recommended that as part of its digital roadmap …
Government response. The government accepts the recommendation and states it is implemented, committing to publishing a Transformation Roadmap this summer. It also plans to increase digital channel use, reduce paper post, and procure an enterprise Customer Relationship Management (eCRM) platform by the …
HM Treasury
27
Conclusion
23rd Report - The cost of the tax system
Accepted
We asked HMRC about the potential for digital systems to reduce costs. It told us that in 2023–24 about 69% of all its interactions with customers were digital and included taxpayers filing their Self Assessment returns online and using the HMRC app to check there Pay As You Earn code.51 …
Government response. The government states the observation is implemented, committing to publishing a Transformation Roadmap this summer. It plans to further increase digital channel use, reduce paper post, and procure an enterprise Customer Relationship Management (eCRM) platform by the end of 2025-26 …
HM Treasury
28
Conclusion
23rd Report - The cost of the tax system
Accepted
HMRC launched its flagship transformation programme Making Tax Digital (MTD) in 2015–16. MTD requires business taxpayers to use third–party software to keep and submit quarterly digital tax records with the aim of: reducing the amount of tax lost from taxpayers making avoidable or careless errors; helping businesses better understand their …
Government response. The government states it has implemented the recommendation by conducting regular customer and user research to understand needs and perspectives, and by using this insight in its design processes and impact assessments.
HM Treasury
29
Conclusion
23rd Report - The cost of the tax system
Accepted
The previous Public Accounts Committee found in 2023 that rather than reducing the overall burden on customers as HMRC had initially expected, MTD was imposing significant additional burdens and costs at a time when many of its customers could least afford it. The Committee concluded that HMRC had lost sight …
Government response. The government states the observation is implemented, outlining its current practices for conducting customer research, using customer insights in service design, assessing changes against 'Customer Guardrails,' and publishing customer impact assessments in Tax Information and Impact Notes (TIINs).
HM Treasury
30
Conclusion
23rd Report - The cost of the tax system
Accepted
In February 2024, HMRC estimated that extending MTD to Income Tax Self Assessment from 2026–27 would impose transitional costs of around £561 million on sole traders and landlords with incomes above £30,000, and the continuing annual costs of MTD to these taxpayers would exceed the continuing annual benefits by around …
Government response. The government states the observation is implemented, detailing its current practices for conducting customer research, using customer insights in service design, assessing changes against 'Customer Guardrails,' and publishing customer impact assessments in Tax Information and Impact Notes (TIINs).
HM Treasury
31
Conclusion
23rd Report - The cost of the tax system
We asked HMRC whether there were potential security concerns that could be posed by the third–party MTD software taxpayers use to submit their tax returns, including whether there were risks to HMRC’s own systems.63 In written evidence provided after our evidence session, HMRC told us it takes security very seriously. …
HM Treasury
32
Conclusion
23rd Report - The cost of the tax system
Accepted
We asked HMRC why MTD will increase the burdens on self assessment business taxpayers. It told us the costs MTD will impose on a business will vary depending on the degree to which they already used business accounting software. Those that currently do not use business accounting software will face …
Government response. The government states it has implemented the recommendation by conducting regular customer and user research to understand needs and perspectives, and by using this insight in its design processes and impact assessments.
HM Treasury
33
Conclusion
23rd Report - The cost of the tax system
Accepted
We asked HMRC what lessons it should learn from the last 10 years of MTD. HMRC explained that when it has completed MTD for Income Tax Self Assessment virtually every business in the UK will be using business accounting software that speaks directly to HMRC’s systems. HMRC said it needed …
Government response. The government agrees with the implied recommendation to learn lessons and leverage software by detailing its existing processes for customer research, user insight, and assessing customer impacts to inform service design and policy changes.
HM Treasury
34
Conclusion
23rd Report - The cost of the tax system
Accepted
In our recent report on the use of AI in government we said: Artificial intelligence has the potential to transform public services by automating routine tasks, making public services quicker and more efficient, and making better use of government data to target support at those that need it. ….. Achieving …
Government response. The government agrees with the potential of AI and details HMRC's extensive ongoing and planned initiatives, including piloting generative AI, launching new AI-powered compliance tools in 2025-26, and investing in staff capability and infrastructure, to enhance services and productivity.
HM Treasury
35
Recommendation
23rd Report - The cost of the tax system
Accepted
Written evidence, received from Southampton University academics and accountants, Dr Md Hosam Al Kaddour and Dr Nouha Saber, recommended that HMRC accelerates digital transformation, including investment in AI–driven customer support to handle routine inquiries and thus reduce call centre costs.70 Written evidence, received from Dr Edidiong Offiong Bassey (a lecturer …
Government response. The government agrees and states it has implemented the recommendations by embedding AI into core compliance and customer service functions, piloting Generative AI initiatives, launching new AI-powered compliance tools in 2025-26, and investing in staff training and reskilling.
HM Treasury
36
Conclusion
23rd Report - The cost of the tax system
Accepted
We asked HMRC whether the age of some of its IT systems were going to make it more difficult to adopt AI. HMRC agreed and considers the “critical thing with AI is making sure you really have a handle on where your data is and that you are managing your …
Government response. The government agrees and states it has implemented the recommendation by leveraging AI in various functions, piloting Generative AI initiatives, and investing in new AI-powered compliance tools and staff training for AI capability.
HM Treasury
37
Conclusion
23rd Report - The cost of the tax system
Accepted
We were also concerned that HMRC has not been making good use of other technologies. In particular, it appears that the UK’s tax system is not as efficient for customers as the systems in some other countries such as Estonia, Denmark, Finland, Canada and Australia.75 In 2023, the NAO reported …
Government response. The government claims the recommendation is implemented and states that HMRC is increasing digital channel use and will publish a Transformation Roadmap this summer. Crucially, by the end of 2025-26, HMRC will procure an eCRM platform to provide a complete …
HM Treasury
38
Conclusion
23rd Report - The cost of the tax system
The written evidence received from Dr Edidiong Offiong Bassey also suggests that HMRC is not making the best use of technology. In particular, he indicated there has been limited promotion in the UK of electronic invoicing and electronic fiscal devices which have seen 71 CTS0001 72 Q 48 73 Q …
HM Treasury
39
Conclusion
23rd Report - The cost of the tax system
Not Addressed
We asked HMRC about its joint consultation with the Department for Business & Trade on e–invoicing which it launched in February 2025. HMRC said e–invoicing has the potential to help businesses and build tax compliance into the way they run their business. We asked what was being covered in the …
Government response. The government's response focuses entirely on HMRC's use of AI and its initiatives in this area, without addressing the committee's observation or implicit query about e-invoicing.
HM Treasury